1. The total compensation cost pertaining to the incentive stock option plan is $36 million.
2. & 3. The appropriate journal entries to record compensation expense on December 31, 2021, 2022, and 2023 are:
1. Total compensation expense
Total compensation expense=Total option× Fair value per option
Total compensation expense=$3×12 million
Total compensation expense= $36 million
2. SSG Cycles Journal entry
December 31, 2021
Debit Compensation expense $12 million
Credit Additional-paid in capital -Stock options $12 million
($36 million/3 years = $12 million per year)
(To record compensation expense)
December 31, 2022
Debit Compensation expense $12 million
Credit Additional-paid in capital -Stock options $12 million
($36 million/3 years = $12 million per year)
(To record compensation expense)
December 31, 2023
Debit Compensation expense $12 million
Credit Additional-paid in capital -Stock options $12 million
($36 million/3 years = $12 million per year)
(To record compensation expense)
3. May 11, 2025
Debit Cash $132 million
($11×12 million)
Debit Additional-paid in capital -Stock options $36 million
Credit Common stock $12 million
($1×12 million)
Credit Additional-paid in capital -excess par $156 million
($132 million+$36 million-$12 million)
(To record the exercise of stock option)
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