Assume that on January 1, year 1, ABC Inc. issued 7,500 stock options with an estimated value of $6 per option. Each option entitles the owner to purchase one share of ABC stock for $33 a share (the per share price of ABC stock on January 1, year 1, when the options were granted). The options vest 40 percent at the end of the day on December 31, year 1, and 60 percent at the end of the day on December 31, year 2. All 7,500 stock options were exercised in year 3 when the ABC stock was valued at $36 per share. Identify ABCs year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios: (Input all amounts as positive values.) (Leave no answer blank. Enter zero if applicable.)

a. The stock options are incentive stock options and ASC 718 (the codification of FAS 123R) does not apply to the options.

b. The stock options are nonqualified stock options and ASC 718 does not apply to the options.

c. The stock options are incentive stock options and ASC 718 applies to the options.

d. The stock options are nonqualified stock options and ASC 718 applies to the options. Complete the following table.

Year 1 Year 2 Year 3 Book-Tax Diff Fav/Unfav Temp/Perm Diff Book-Tax aiuntay Temp:Perm Book-TaxaiUnfay TempiPerm emp/Perm Book-Tax emp/Perm Book-Tax Diff Pre ASC 718 Incentive Stock Options Nonqualified Stock Options Under ASC 718 Incentive Stock Options Nonqualified Stock Options