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 7 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 7 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%.

1. 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.

Record any tax effect related to the exercise of the options.

\begin{tabular}{|l|l|l|l|l|} \hline 8 & August 21, 2028 & Income tax payable & & \\ \hline & & Income tax expense & & \\ \hline & & Deferred tax asset & & \\ \hline \end{tabular}