Determine the total compensation cost pertaining

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JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its non qualified stock option plan. JBL granted options to key officers on January 1,2013. The options permit holders to acquire six millions of the companies $1 par common shares for $22 within the next six years, but not before January 1, 2016 (the vesting date). The market price of the shares on the date of grant is $26 per share. The fair value of the 6 million options., estimated by an appropriate option pricing model, is $6 per option because the plan does not qualify as an incentive plan. JBL will receive a tax deduction upon exercise of the options equal to the excess of the market price at exercise over the exercise price. The tax rate is 40%.

Required

1. Determine the total compensation cost pertaining to the incentive stock option plan(Enter your answers in millions.)

2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2013, 2014 and 2015

3. Record the exercise of the options and their tax effect if all of the options are exercised on August 21, 2017, when the market price is $27 per share .

Reference no: EM13897556

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