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Assume that on January 1, year 1, ABC Inc. issued 5,000 stockoptions with an estimated value of $10 per option. Each optionentitles the owner to purchase one share of ABC stock for $25 ashare (the per share price of ABC stock on January 1, year 1, whenthe options were granted). The options vest at the end of the dayon December 31, year 2. All 5,000 stock options were exercised inyear 3 when the ABC stock was valued at $31 per share. IdentifyABC’s year 1, 2, and 3 tax deductions and book–tax differences(indicate whether permanent and/or temporary) associated with thestock options under the following alternative scenarios:a) The stock options are incentive stock options and ASC 718applies to the options.b) The stock options are nonqualified stock options and ASC 718applies to the options.