For its first year of operations, Altitude Inc. reports pre$-$tax GAAP income of $$100,00$ Year $1.$

Assume pre$-$tax GAAP income in Year $2$$$125,000.$ The enacted income tax rate for all years is $25\%.$

The following additional information is available the first three years of operations.

Prepaid rent on a short$-$term lease in the amount of $$20,000$ was recorded on December $31$

of Year $1$ for Year $2$ rent. Rent is deductible for tax purposes in the year paid.

A warranty accrual of $$30,000$ recorded on December $31$ of Year $1$ is not deductible for tax

purposes until the warranty costs are paid or incurred. The amount is paid evenly over Year

$2$ through Year $4.$

The company recorded interest revenue of $$500$ each year $($Year $1-$Year $2,$ and Year $3)$ or

municipal bonds. Interest revenue on municipal bonds is not taxable.

Required:

a$.$ Compute the increase in income tax payable on December $31$ of Year $1$ and Year $2$

b$.$ Prepare a schedule to compute the deferred tax liability balance and a schedule to comput

deferred tax asset balance on December $31$ of Year $1$ and Year $2$

c$.$ Record the income tax journal entries in Year $1$ and Year $2$

Part $2$:

In year $2,$ US government enacts legislation increasing the statutory rate to $30\%$ beginning year $3$

Prepare calculations in a$-$c above for year $2$ only.