For its first year of operations, Discovery, Inc. reports income before income tax for GAAP purposes of $100,000 in 2015. Assume pretax GAAP income in 2016 and 2017 of $125,000 and $90,000, respectively. The enacted federal income tax rate for all years is 25%.

The following information is available about differences in accounting methods used for certain transactions for GAAP vs. federal tax purposes:

• $20,000 of rent paid on December 31, 2015 for 2016 is accounted for under GAAP as prepaid rent. For tax purposes, rent is deducted in the year it is paid.
• Discovery estimated and accrued warranty costs of $30,000 in 2015 under GAAP. Warranty costs are deductible for tax purposes when they are actually paid out, and this happens evenly in 2016, 2017, and 2018.
• Discovery earned $500 each year on its investment in municipal bonds. Interest revenue on municipal bonds is not taxable for federal tax purposes.

Required:

1. Compute income taxes payable in years 2015, 2016, and 2017. Show your work.
2. Determine the balances of any deferred tax assets and/or liabilities that should be reported in 2015, 2016, and 2017. Show your work.
3. Provide the journal entries in 2015, 2016, and 2017 that would correctly account for income tax liabilities, deferred tax assets and liabilities, and income tax expense.