E 19-5 Stock option,Its American OpticalCorporation provides a variety of share-based compensation plans to itsemployees.,Under its executive stockoption plan, the company granted options on January 1, 2011, that permitexecutives to acquire 4 million of the company’s $1 par common shares withinthe next five years, but not December 31, 2012 (the vesting date).,The exercise price is the market price of theshares on the date of grant, $14 per share.,The fair value of the 4 million options, estimated by an appropriateoption pricing model, is $3 per option.,No forfeitures are anticipated.,Ignore taxes.,Required:,1. Determine the total compensation cost pertaining to theoptions.,2. Prepare the appropriate journal entry to record the awardof options on January 1, 2011.,3. Prepare the appropriate journal entry to recordcompensation expense on December 31, 2011.,4. Prepare the appropriate journal entry to recordcompensation expense on December 31, 2012.