q. 27

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, 2018. The options permit holders to acquire 6.5 million of the company's $1 par common shares for $22 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $26 per share. The fair value of the 6.5 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 40%. Required: 1. Determine the total compensation cost pertaining to the incentive stock option plan. 2. & 3. Record the necessary journal entries on December 31, 2018, 2019, and 2020. Assume all of the options are exercised on August 21, 2022, when the market price is $27 per share.

Determine the total compensation cost pertaining to the incentive stock option plan. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).)

Total compensation cost

million

req.2

journal 1.Record compensation expense on December 31, 2018.

journal 2.Record any tax effect related to compensation expense recorded in 2018.

journal 3.Record compensation expense on December 31, 2019.

journal 4. Record any tax effect related to compensation expense recorded in 2019.

journal 5.Record compensation expense on December 31, 2020.

journal 6.Record any tax effect related to compensation expense recorded in 2020.

journal 7.Record the exercise of the options on August 21, 2022 when the market price is $27 per share.

journal 8.Record any tax effect related to the exercise of the options.