In Year 1, the Natole Corp. sells a building that it has owned for many years for a gain of $50 million. The buyer agrees to pay Natole half the purchase price in Year 1 and the other half (plus interest) in Year 2.

For GAAP, the entire gain is recognized in Year 1.

For tax purposes, Natole is using the installment method, and will report half the gain in Year 1 and half in Year 2.

The tax rate is 35%.

A. How much tax will Natole pay because of this transaction in:

a. Year 1?

b. Year 2?

B. For GAAP accounting purposes, how much should the tax expense be in:

a. Year 1?

b. Year 2?

C. For GAAP purposes, will Natole show a deferred tax asset or a deferred tax liability at the end of Year 1? Explain.