On October 1, 2016, Farmer Fabrication issued stock options for 280,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 2% in four years. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 2% in four years. 1. What is the revised estimate of the total compensation? 2. What action will be taken to account for the options in 2017? Farmer will reflect the cumulative effect on compensation in 2017 earnings. Farmer will reverse the 2016 recorded compensation.