Assume that on January 1, year 1, ABC Inc. issued 7,800 stock options with an estimated value of $12 per option. Each option entitles the owner to purchase one share of ABC stock for $27 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 7,800 stock options were exercised in year 3 when the ABC stock was valued at $35 per share. Identify ABCs year 1, 2, and 3 tax deductions and booktax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios: Required:

1. The stock options are incentive stock options.
2. The stock options are nonqualified stock options.

Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.)

Temporary/ Permanent Book-Tax Diff Year 2 Favorable! Unfavorable Temporary Permanent Book-Tax Diff Year 3 Favorable! Unfavorable Temp/Perm Year 1 Book-Tax Favorable! Diff Unfavorable Under ASC 718 a. Incentive Stock Options [$ 37,440 (Unfavorable b. Nonqualified Stock Options $ 117,000 Unfavorable Permanent $ Permanent N/A Unfavorable Unfavorable $ ONA $ 62,400 Unfavorable Temporary $ Temporary Permanent $ 0 Unfavorable Permanent Temporary/ Permanent Book-Tax Diff Year 2 Favorable! Unfavorable Temporary Permanent Book-Tax Diff Year 3 Favorable! Unfavorable Temp/Perm Year 1 Book-Tax Favorable! Diff Unfavorable Under ASC 718 a. Incentive Stock Options [$ 37,440 (Unfavorable b. Nonqualified Stock Options $ 117,000 Unfavorable Permanent $ Permanent N/A Unfavorable Unfavorable $ ONA $ 62,400 Unfavorable Temporary $ Temporary Permanent $ 0 Unfavorable Permanent