Farris Casinos recently acquired a newly built hotel and casino in Atlantic City. The cost of the complex was $ 6,000,000, with a six- year useful life and no residual value expected. Farris depreciates its buildings using the straight- line method for financial reporting and an accelerated method for tax purposes. The tax depreciation percentages for the first two years are 20% and 32%, respectively. Farris is subject to a 40% income tax rate.
Required
a. Assuming that year 2 income before tax and depreciation is $ 3,700,000, determine the year 2 income tax payable, the deferred tax provision, and income tax expense.
b. Compute the deferred tax account on the balance sheet at the end of year 2 and indicate if the balance represents a deferred tax asset or a deferred tax liability. Prepare the tax accrual journal entry for year 2.