Clark Corporation specializes in the design and construction of roller coasters. Clark often allows its clients to pay for a roller coaster with a series of installments. For GAAP reporting purposes, Clark records the entire sale in the year the roller coaster is delivered, however, for tax reporting purposes, Clark reports only the gross profit related to each year's collections. In 20X1, Clark sold 2 roller coasters resulting in gross profit of $7,200,000 being reported on the income statement. Both transactions were structured as installment sales with payments being spread evenly over three years, starting in the current year. Accordingly, Clark reports $2,400,000 per year of gross profit for tax purposes in 20X1, 20X2 and 20X3 as the installments are collected. Clark had no installment sales in 20X2.

In addition to designing and constructing roller coasters, Clark derives revenue from renting a commercial real estate property that it owns for $12,500 per month. The property is rented to Alverson Enterprises, which prepaid its rent for 3 years on January 2, 20X1.

Clark utilizes a wide range of metal working equipment in its fabrication process. The assets are depreciated for book and tax purposes as follows:

Book Tax

20X1 $1,250,000 $1,786,250

20X2 1,250,000 3,061,250

20X3 1,250,000 2,186,250

20X4 1,250,000 1,561,250

20X5 1,250,000 1,116,250

20X6 1,250,000 1,115,000

20X7 1,250,000 1,116,250

20X8 1,250,000 557,500

20X9 1,250,000 0

2X10 1,250,000 0

The roller coasters Clark sold in 20X1 are covered by a 5-year warranty against defects. Clark accrued $1,300,000 in 20X1 to reflect this obligation. Costs incurred to provide warranty repairs were $298,000 and $382,000 in 20X1 and 20X2 respectively. Additional warranty costs are expected to be $290,000, $180,000, and $150,000 in 20X3, 20X4 and 20X5 respectively.

On February 13, 20X1, a plaintiff filed a lawsuit against Clark for injuries they received while riding a roller coaster it designed and sold in a previous year. At the time of the filing, Clark's legal counsel determined that an unfavorable outcome was probable and that a likely settlement would be $850,000. Accordingly, Clark accrued a contingent liability and related loss in 20X1. As expected, Clark settled the claim on March 17, 20X2 for $850,000. (None of the settlement represents a fine. Settlements of this nature are deductible for tax purposes when they are paid.)

Clark invested its idle funds in municipal bonds and earned interest of $49,000 and $57,000 in 20X1 and 20X2, respectively. Clark expects to earn an average of $56,000 per year of municipal bond interest from 20X3 to 20X9.

Clark pays premiums of $24,000 per year to insure the lives of its officers. Clark is the beneficiary of these policies.

Clark's pretax book income in 20X1 and 20X2 is $4,200,000 and $3,100,000, respectively. Tax rates for Clark are as follows:

20X1 35%

20X2 - 20X4 38%

20X5 - 2X10 40%

On January 1, 20X1, Clark's deferred tax asset account balance was $191,200 (debit) and deferred tax liability account balance was $207,400 (credit). Clark reported a Net Operating Loss of $500,000 last year and recorded a Deferred Tax Asset - NOL based on expected future tax rate of 35%. Clark wishes to use the NOL as early as possible.

What would the entries be to record Clark's income tax expense, asset, and liability items for 20X1 and 20X2? I also have to make sure to include a separate Step 2 schedule for each year.