On January 1, 2016, ABC LLC, the leading manufacturer of biodegradable Bricks in Texas, purchases a new machine for $10 Million. ABC uses straight-line depreciation for financial reporting purposes. Depreciation for tax purposes is calculated using the double declining balance method. The useful life for both GAAP and tax purposes is 4 years. The salvage value of the machine is anticipated to be $2,000,000. A full year of depreciation is taken for both GAAP and tax purposes. The tax rate is 21%. Problem 1.1 GAAP Depreciation Expense in Year 1: Problem 1.2 Tax Depreciation Deduction in Year 1: Problem 1.3 Tax Depreciation Deduction in Year 2: Problem 1.4 At the end of the first year, what amount of deferred tax liability, if any, will Henry Oliver report on its balance sheet. Deferred Tax Liability Balance in Year 1: Problem 1.5 If Henry Paul instead used DDB for both GAAP and tax purposes over the entire period, what amount of depreciation expense would be recognized in year 3 for GAAP? GAAP Depreciation Expense in Year 3: Problem 1.6 In 2016, ABC LLC was sued for producing Bricks that decompose too quickly, with reports of some coming back to their structures and instead of finding piles of dirt. ABC is confident that a competitor, DEF Inc., has been staging these cases for bad publicity. However, ABC LLC estimates a loss of $1,000,000 could occur with a probability of 50%. What amount of a loss, if any, should ABC recognize on the income statement? Enter 0 if no loss should be recognized. Amount of Recognized Loss in 2016