On December 15, Year 1, Woods Company entered into an agreement to rent part of its warehouse to Sycamore Inc. for $20,000 per year, beginning January 1, Year 2. On December 15, when the agreement was signed, Woods received a check in the amount of $20,000 for the first year’s rent. All future rent payments will be made on January 1 of the year for which the rent payment applies. Woods has a December 31 fiscal year end. Before recording this rent payment, Woods has pre-tax book income of $250,000 for Year 1 and $300,000 for Year 2. The statutory tax rate is 20%.

Requirements:

Calculate (1) pretax accounting income, (2) taxable income, and (3) taxes payable for Year 1 and 2, and prepare the journal entries to record taxes for both years.