Fabric Foundry Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2021, that permit executives to acquire 3 million of the company's $1 par value common shares within the next five years, but not before December 31, 2022 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2.50 per option.

Required:

[1] Determine the total compensation cost pertaining to the options.

[2] Prepare the appropriate journal entry to record the award of the options on January 1, 2021. (If no entry is required, write no entry needed.)

[3] Prepare the journal entries to record compensation expense on December 31, 2021 and December 31, 2022. (If no entry is required, write no entry needed.)

[4] Assume that 50% of the options granted on January 1, 2021 were exercised in June 2023 when the market price was $17.50 per share. Prepare the journal entry required. (If no entry is required, write no entry needed.)