In 2004, EDOUARD, S.A., the manufacturer of PLYLOX clips, purchases a new machine in anticipation of increased demand due to forecasted Hurricane activity in the Atlantic Ocean. The purchase price is $10 Million. EDOUARD uses straight-line depreciation for financial reporting purposes, and estimates that the machine will last 10 years and will not have a residual value. Income prior to depreciation and taxes is $5 Million each year for the next 10 years. The income tax rate is 40%.

What is the amount of net income and income tax expense EDOUARD will report for the next 10 years?

(You need to be able to calculate this, but do not have to provide your answer here)

For tax purposes, EDOUARD uses the following schedule to depreciate the equipment:

Years 1-2: $3 Million per year

Years 3-10: $0.5 Million per year

What is the amount of Taxable Income EDOUARD will report for the next 10 years? What is the amount of taxes EDOUARD will pay each year?

(You need to be able to calculate this, but do not have to provide your answer here)

Record all transactions related to income taxes over the 10 year period.

(You need to be able to answer the above questions, but only need to answer the specific questions below)

What is the amount of the income tax expense Edouard will recognize each year?

What is the amount of cash paid for taxes in years 1 and 2?

What is the amount of cash paid for taxes in years 3-10?

In years 1 and 2, what amount is credited to DTL each year?

In years 3-10, what amount is debited to DTL each year?