Calculate Taxable Income for 2018 and 2019

Arsenal, Inc. began 2018 with the following balances in deferred tax accounts: The deferred tax asset results from a balance of $500,000 in Warranty Liability. The deferred tax liability results from the financial accounting bases of depreciable assets exceeding the tax bases of depreciable assets by $350,000 due to excess MACRS depreciation over straight-line in previous years and an Installment Receivable of $50,000 that will be collected upon and taxed in 2018. Pre-tax accounting income in 2018 and 2019 is $40,000 and $180,000, respectively and includes non-taxable municipal bond interest of $50,000 in 2018 and $60,000 in 2019 . During 2018 straight-line (financial) depreciation exceeded MACRS (tax) by $40,000. In 2019, MACRS (tax) depreciation exceeded straight-line depreciation by $20,000. In 2018, Arsenal received $60,000 in deferred revenue which will be earned evenly over 2019 and 2020. In 2018, Arsenal incurred actual costs to repair products associated with warranties of $450,000, though warranty expense was $200,000. For 2019 , warranty expenses totaled $300,000 and costs to repair incurred under warranty were $310,000. Arsenal also insures the life of its president, Thierry Henry. Premiums of $15,000 were paid in both 2018 and 2019 and Arsenal is the beneficiary on the policy. At the end of 2018, management estimated that the DTA - Valuation Allowance account should have a balance of $8,000. Arsenal's management decided that at the end of 2019 , the valuation allowance should be 5\% of the Deferred Tax Asset balance. The tax rate was 35% for 2017 and 2018 , but during 2018 the U.S. Congress changed the applicable tax rate to 21% for 2019 and all subsequent years. In the event of a net operating loss, Arsenal, Inc. began 2018 with the following balances in deferred tax accounts: The deferred tax asset results from a balance of $500,000 in Warranty Liability. The deferred tax liability results from the financial accounting bases of depreciable assets exceeding the tax bases of depreciable assets by $350,000 due to excess MACRS depreciation over straight-line in previous years and an Installment Receivable of $50,000 that will be collected upon and taxed in 2018. Pre-tax accounting income in 2018 and 2019 is $40,000 and $180,000, respectively and includes non-taxable municipal bond interest of $50,000 in 2018 and $60,000 in 2019 . During 2018 straight-line (financial) depreciation exceeded MACRS (tax) by $40,000. In 2019, MACRS (tax) depreciation exceeded straight-line depreciation by $20,000. In 2018, Arsenal received $60,000 in deferred revenue which will be earned evenly over 2019 and 2020. In 2018, Arsenal incurred actual costs to repair products associated with warranties of $450,000, though warranty expense was $200,000. For 2019 , warranty expenses totaled $300,000 and costs to repair incurred under warranty were $310,000. Arsenal also insures the life of its president, Thierry Henry. Premiums of $15,000 were paid in both 2018 and 2019 and Arsenal is the beneficiary on the policy. At the end of 2018, management estimated that the DTA - Valuation Allowance account should have a balance of $8,000. Arsenal's management decided that at the end of 2019 , the valuation allowance should be 5\% of the Deferred Tax Asset balance. The tax rate was 35% for 2017 and 2018 , but during 2018 the U.S. Congress changed the applicable tax rate to 21% for 2019 and all subsequent years. In the event of a net operating loss