Refer to the data in the preceding problem for the Libby Company. Assume that each year the Libby Equilibrium Company acquires an asset with a depreciable life of 4 years. Each year the asset acquired qualifies for an investment credit of \(\$ 4,000\) and income tax expense before any investment credits is \(\$ 100,000\).

a Record entries related to income taxes and the investment credit for each of the first 5 years using the flow-through method.

b Record entries related to income taxes and the investment credit for each of the first 5 years using the deferral method.

c Assuming that Libby Equilibrium Company's income taxes, asset acquisitions, and investment credits continue in the following years as in the first 4 years, describe the effects on the financial statements of the two methods of accounting for the investment credit.

d Assume the same data as in part

c, but that the new asset's cost increases by 10 percent each year and that the amount of the investment credit earned increases by 10 percent each year. Describe the effects on the financial statements of the two methods of accounting for the investment credit.