Walters Audio Visual, Inc., offers a stock option plan to its regional managers. On January 1, 2021, 40 million options were granted for 40 million $1 par common shares. The exercise price is the market price on the grant date, $8 per share Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027 The fair value of the options, estimated by an appropriate option pricing model, is $2 per option Because the plan does not qualify as an incentive plan, Walters 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 income tax rate is 25% Required: 1. Determine the total compensation cost pertaining to the stock option plan 2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2021 3. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2022 4. Record the exercise of the options and their tax effectif all of the options are exercised on March 20, 2026, when the market price is 512 per share 5. Assume the option plan qualifies as an incentive plan. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2021 6. Assuming the option plan qualifies as an incentive plan, record the exercise of the options and their tax effect of all of the options are exercised on March 20, 2026, when the market price is $11 per share. No Debit Credit 1 Dato Generalloumal December 31, 202 Compensation expense Paid-in capital - stock options 40 40 N December 31, 202Deferred tax asset Income tax expense 10 > 10 > 3 December 31, 202. Compensation expense Paid-in capital - stock options 40 > 40 4 40 X December 31, 202,Income tax payable Deferred tax asset Income tax expense 332 X 8 X 5 March 20, 2026 Compensation expenso Pald-in capital - stock options 40 40 X 6 March 20, 2026 Cash Paid in capital - stock options 320 XX 80 Req 1 Reg 2 to 4 Reg 5 and 6 Assume the option plan qualifies as an incentive plan if all of the options are exercised on March 20, 2026, when the ma price is $11 per share. Prepare the necessary journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (.e., 10,000,000 should be entered as 10 No Date General Journal Debit Credit March 20, 2026 4 320 XX 80 40 360 X