For the year ended December 31 , Year 1 , Health Company reported a $350,000 warranty expense in its income statement. The expense was based on actual warranty costs of $70,000 in Year 1 and expected warranty costs of $84,000 in Year 2, $87,000 in Year 3, and $109,000 in Year 4. Tax rates in effect are 15% for Year 1 and Year 2, and 20% for Year 3 and beyond. At December 31, Year 1 , this difference will yield a $52,500 Deferred Tax Liability $62,300 Deferred Tax Asset $52,500 Deferred Tax Asset $62,300 Deferred Tax Liability $42,000 Deferred Tax Asset $51,800 Deferred Tax Liability $42,000 Deferred Tax Liability $51,800 Deferred Tax Asset