Assume that on January 1, year 1, ABC Incorporated issued 7,000 stock options with an estimated value of $8 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 7,000 stock options were exercised in year 3 when the ABC stock was valued at $32 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: a. The stock options are incentive stock options. b. 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.) Answer is complete but not entirely correct. Book-Tax differences Year 1 Favorable/ Unfavorable Temporary/ Permanent Book-Tax differences Year 2 Favorable/ Unfavorable Year 3 Temporary/ Permanent Book-Tax differences Favorable/ Unfavorable Temporary/ Permanent Under ASC 718 a. Incentive Stock Options $ 39,200 Unfavorable Permanent $ b. Nonqualified Stock Options $ 39,200 Unfavorable Temporary $ 16,800 Unfavorable 16,800 Unfavorable Permanent $ 0 N/A N/A Temporary $ 0 Favorable Temporary (temporary differences) b. Nonqualified Stock Options $ 39,200 Unfavorable > Permanent $ 16,800 Unfavorable Permanent $ 56,000 Favorable Temporary (permanent differences)