Assume that on January $1,$ year $1,$ ABC Incorporated issued $5,000$ stock options with an estimated value of $$10$ per option. Each option entitles the owner to purchase one share of ABC stock for $$25$ a share $($the per share price of ABC stock on January $1,$ year $1,$ when the options were granted$).$ The options vest at the end of the day on December $31,$ year $2.$ All $5,000$ stock options were exercised in year $3$ when the ABC stock was valued at $$31$ per share. Identify ABC's year $1,2,$ and $3$ tax deductions and book$$tax differences $($indicate as favorable or unfavorable and as permanent or temporary$)$ associated with the stock options under the following alternative scenarios:

Required:

The stock options are incentive stock options.

The stock options are nonqualified stock options.