Denver Co. at the end of 20x1, its first year of operations, prepared reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $300,000

Extra depreciation taken for tax purposes 900,000

Estimated litigation expenses deductible for taxes when paid 1,500,000

Rent collected on the tax return is greater than rent reported on the income statement by $220,000

Interest income from Denver municipal bonds 100,000

Use of the depreciable assets will result in taxable amounts of $300,000 in each of the next three years. The estimated litigation expenses of $1,500,000 will be deductible in 20x4 when settlement is expected.

a) Compute the taxable income.

b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 20x1, assuming a tax rate of 40% for all years.