On October 15, 2020, the board of directors of Phineas Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 20 million stock options were granted, exercisable for 20 million shares of Phineas' $1 par common stock. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $15. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $6 per option. Phineas chooses the option to recognize forfeitures only when they occur.

Ten percent (2 million) of the options were forfeited when an executive resigned in 2022. All other options were exercised on July 12, 2025, when the stock's price jumped unexpectedly to $19 per share.

Required:

1.Determine the compensation expense for the stock option plan in 2021.

2.Prepare the journal entries for 2021, 2022, and 2023.

3.Is Phineas' policy on recording the option forfeitures consistent with the general approach for accounting for estimates? Explain.

4.Prepare the journal entries to account for the exercise of the options in 2025.