In Year 1, Zhang Corp. records a $300,000 expense on its books for vacation pay that has been earned by its employees, for vacations they have not yet taken. The tax law will not allow Zhang to take a deduction for vacation pay until the employees take their vacations. Assume that employees do take the vacations in Year 2.

The tax rate is 35%.

A. How much of a tax savings will Zhang have because of this employee vacation pay in:

a. Year 1?

b. Year 2?

B. For GAAP accounting purposes, what tax benefit related to the vacation pay will Zhang record in

a. Year 1?

b. Year 2?

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