Davis Company began manufacturing operations on January 2, 20X1. During 20X1 Davis reported pre-tax book income of $85,000 and had taxable income of $75,000. Davis had a temporary difference relating to a prepaid asset which will be expensed as follows for book purposes: 20x2 20X3 $7,500 $2,500 The enacted tax rates are 21% for 20X1 and 20X2; and 25% for subsequent years. If no other temporary differences occurred subsequent to 20X1, the deferred liability at the beginning of 20X3 is: Multiple Choice $1,350. $1,000. $625. $2,500.