Assume that on January 1, year 1, ABC Inc. 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 ABCs year 1, 2, and 3 tax deductions and booktax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios:

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

Complete the following table.