Assume that on January 1, year 1, ABC Inc. issued 5,500 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $26 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 5,500 stock options were exercised in year 3 when the ABC stock was valued at $33 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:

1. The stock options are incentive stock options and ASC 718 does not apply to the options.
2. The stock options are nonqualified stock options and ASC 718 does not apply to the options.
3. The stock options are incentive stock options and ASC 718 applies to the options.
4. The stock options are nonqualified stock options and ASC 718 applies to the options. I NEED ANSWERS FOR C AND D ONLY

Complete the following table. (Input all amounts as positive values. Leave no answer blank. Enter zero if applicable.)

	Year 1			Year 2			Year 3
	Book-Tax Diff	Fav/Unfav	Temp/Perm	Book-Tax Diff	Fav/Unfav	Temp/Perm	Book-Tax Diff	Fav/Unfav	Temp/Perm
Pre ASC 718
Incentive Stock Options	$0	N/A	N/A	$0	N/A	N/A	$0	N/A	N/A
Nonqualified Stock Options	$0	N/A	N/A	$0	N/A	N/A	$38,500	Favorable	Permanent
Under ASC 718
Incentive Stock Options	???	Unfavorable	Permanent	??	Unfavorable	Permanent	$0	N/A	N/A
Nonqualified Stock Options	???	Unfavorable	Temporary	???	Unfavorable	Temporary	???	Favorable	Temporary
								Unfavorable	Permanent