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Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January...

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Accounting

Walters Audio Visual Inc. offers an incentive stock option planto its regional managers. On January 1, 2021, options were grantedfor 40 million $1 par common shares. The exercise price is themarket price on the grant date—$8 per share. Options cannot beexercised prior to January 1, 2023, and expire December 31, 2027.The fair value of the 40 million options, estimated by anappropriate option pricing model, is $1 per option.

Required: 1. Determine the total compensation cost pertaining tothe incentive stock option plan.

2. to 5. Prepare the appropriate journal entries to recordcompensation expense on December 31, 2021 and 2022. Prepare theappropriate journal entry to record the exercise of 75% of theoptions on March 12, 2023, when the market price is $9 per shareand the entry on December 31, 2027, when the remaining options thathave vested expire without being exercised.

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