E19-14 (L01,2,3,4) (Deferred Tax Liability, Change in Tax Rate, Prepare Section of Income Statement) Novotna Inc.s only temporary difference at the beginning and end of 2016 is caused by a $3 million deferred gain for tax purposes for an install- ment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal install- ments in 2017 and 2018. The related deferred tax liability at the beginning of the year is $1,200,000. In the third quarter of 2016, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2018. Taxable income for 2016 is $5,000,000, and taxable income is expected in all future years.

Instructions

(a) Determine the amount reported as a deferred tax liability at the end of 2016. Indicate proper classification(s).

(b) Preparethejournalentry(ifany)necessarytoadjustthedeferredtaxliabilitywhenthenewtaxrateisenactedintolaw.

(c) Draft the income tax expense portion of the income statement for 2016. Begin with the line Income before income

taxes. Assume no permanent differences exist.