Choice "B" is correct. Compensation cost for restricted share plans is determined using the following formula:

Using the above formula, the total compensation cost for Year 1 is $20.00 × 10,000 shares$200,000.Using the above formula, the total compensation cost for Year 2 is $25.00 × 20,000 shares$500,000.Total compensation cost is allocated to compensation expense on a straight-line basis over the time period in which the employee must provide service. This company has a four-year service period. The compensation expense for the 12 months ended December 31, Year 2 would be one fourth of the compensation cost of Year 1, which is $50,000 (1/4 × $200,000) and one fourth of the compensation cost of Year 2, which is $125,000 (1/4 × $500,000), for a total of $175,000.Choice "c" is incorrect. In calculating compensation cost, the company should use the fair value of the shares on the grant dates (January 1, Year 1 and January 1, Year 2) and not the fair value of the shares at the end of each year.Choice "d" is incorrect. The error in this calculation is that it uses $30 as the per share price for both Year 1 and Year 2. $30 × (10,000 + 20,000 shares)$900,000. $900,000 / 4 years$225,000.Choice "a" is incorrect.  Compensation cost must be allocated to compensation expense on a straight line basis over the time period in which the employee is required to provide service. This answer represents the total, unallocated $500,000, which should be reported over 4 years.