I have most of the questions correct. However, I'm struggling on Required $5 cash and paid in capital. I'm also unsure how to all of Required #6. Please show work so I can understand it.
Walters Audio Visual, Inc., offers a stock option plan to its regional managers. On January 1, 2021, 40 million options were granted fo 40 million $1 par common shares. The exercise price is the market price on the grant date. $8 per share. Options cannot be exercise prior to January 1, 2023, and expire December 31, 2027. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Because the plan does not qualify as an incentive plan, Walters will receive a tax deduction upon exercise the options equal to the excess of the market price at exercise over the exercise price. The income tax rate is 25%. Required: 1. Determine the total compensation cost pertaining to the stock option plan. 2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2021. 3. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2022. 4. Record the exercise of the options and their tax effect if all of the options are exercised on March 20.2026, when the market pric is $12 per share. 3. Assume the option plan qualifies as an incentive plan. Prepare the appropriate journal entries to record compensation expense a its tax effect on December 31, 2021. 8. Assuming the option plan qualifies as an incentive plan, record the exercise of the options and their tax effect if all of the options exercised on March 20, 2026, when the market price is $11 per share. Answer is not complete. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 to 4 Reg 5 and 6 2022 2. & 3. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2021 and 4. Assume all of the options are exercised on March 20, 2026, when the market price is $12 per share. Prepare the necessary journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Show less No Date General Journal Debit Credit 1 40 December 31, 202 Compensation expense Paid-in capital - Stock options lo 40 2 10 December 31, 202 Deferred tax asset Income tax expense Qlo 10 > 3 > 40 December 31, 202. Compensation expense Paid-in capital - stock options ol 40 > 4 10 December 31, 2022 Deferred tax asset Income tax expense 10 > 5 March 20. 2028 Cash 30 > Paid-in capital - stock options Common stock Paid-in capital - excess of par OOOO 40 6 March 20, 2026 40 Income tax payable Deferred tax asset ol 20
