Problem $05-40($LO $05-2)($Algo$)$

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.

Note: For all requirements, leave no answer blank. Enter zero if applicable and select "Not Applicable" if no effect.

Answer is complete but not entirely correct.

Year $1$

Year $2$

Prev

$2$ of $7$

Next

nplete the following table.

For all requirements, leave no answer blank. Enter zero if applicable and select "Not Applicable" if no effect.

Answer is complete but not entirely correct.

Prev

$2$ of $7$

Next

Answer is complete but not entirely correct.

$\backslash$table$[[$Year $2,,,,,$Year $3,,],[,\backslash$table$[[$ok$-$Tax$],[$arences$]],\backslash$table$[[$Favorable$],[$Unfavorab$]],,\backslash$table$[[$Temporar$],[$Permane$]],,,\backslash$table$[[$ok$-$Tax$],[$erences$]],\backslash$table$[[$Favorable or$],[$Unfavorable$]],,\backslash$table$[[$Temporary or$],[$Permanent$]],],[$o$,16,800x,$Unfavorable,$,$Permanent,$0,$$$,00,$Not Applicable,$0,$Not Applicable,$$