On July 1 of year 1, Riverside Corporation (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $1,890,000 of goodwill for both book and tax purposes. At the end of year 1, RC determined that the goodwill had not been impaired during the year. In year 2, however, RC concluded that $360,000 of the goodwill had been impaired and wrote down the goodwill by $360,000 for book purposes.

Required:

1. What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary?
2. What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary?

-----------------

Assume that on January 1, year 1, ABC Incorporated issued 7,250 stock options with an estimated value of $13 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 7,250 stock options were exercised in year 3 when the ABC stock was valued at $34 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:

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

Complete the following table.

Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. Note: For all requirements, leave no answer blank. Enter zero if applicable and select "Not Applicable" if no effect