Prepare the appropriate journal entry to record the exercise

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Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for 4 million $1 par common shares. The exercise price is the market price on the grant date-$5 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the 4 million options, estimated by an appropriate option pricing model, is $1 per option.

Required:

Question 1: Determine the total compensation cost pertaining to the incentive stock option plan.

Question 2: Prepare the appropriate journal entries to record compensation expense on December 31, 2021 and 2022. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2023, when the market price is $6 per share and the entry on December 31, 2027, when the remaining options that have vested expire without being exercised.

Reference no: EM132689567

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