SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option.

Required:

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

[2]Prepare the appropriate journal entries to record compensation expense on December 31, 2021, 2022, and 2023.

[3]Record the exercise of the options if all of the options are exercised on May 11, 2025, when the market price is $14 per share.

[4]For the year-ended December 31, 2023, the company reported net income of $100 million and, excluding the stock options mentioned above, there were 25 million shares outstanding. For the year-ended December 31, 2023 calculate (a) basic earnings per share and (b) diluted earnings per share. Assume compensation expense is already reflected in the net income of $100 million and the only impact the options have on diluted earnings per share is the impact on the share count.