JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety

of share$-$based compensation plans. Under its nonqualified stock option plan, JBL granted options to

key officers on January $1,2024.$

The options permit holders to acquire $6$ million of the company's $$1$ par common shares for $$22$

within the next six years, but not before January $1,2027($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 $25\%.$

Required:

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

Prepare the appropriate journal entries to record compensation expense and its tax effect on

December $31,2024,2025,$ and $2026.$

Record the exercise of the options and their tax effect if all of the options are exercised on August

$21,2028,$ when the market price is $$27$ per share.