Selected information from the income statements and tax returns of Buchanan Trading Co. are provided below for 1999 and 2000, the firm’s first two years of operations (dollars in millions):

Selected Income Statement Items 1999 2000 Income before depreciation and taxes $1000 $1100 Depreciation expense 400 450 Pre-tax income 600 650 Income tax expense (35%) 210 227.5 Selected Tax Items 1999 2000 Income before depreciation and taxes $1000 $1100 Depreciation expense 700 800 Taxable income 300 300 Income tax payable (35%) 105 105 Required Determine the following amounts:

a. Difference between the tax basis and book basis of Buchanan’s assets at the end of each year.

b. Deferred tax liabilities at the end of each year.

c. In the year 2001, Buchanan Trading Company reported $800 million of depreciation in its income statement and $600 million of depreciation on its tax return. The firm’s income before depreciation and income taxes was $950 million. Enacted income tax rates applicable to firms such as Buchanan were increased to 45% effective at the beginning of the year 2001. Based on this new information, determine Buchanan’s income tax expense and net income after tax reported on its income statement for the year 2001. Calculate the deferred tax liability reported on its balance sheet at December 31, 2001.