On January 2, 2020, heavy equipment costing $900,000 was purchased. The equipment had a life of 3 years and no salvage value. The straight-line method of depreciation (you can figure this out on your own) is used for book purposes and the tax depreciation taken each year is listed below:

Tax Depreciation

2020 2021 2022

$440,000 $250,000 $210,000

The income tax rate is 30% for all years. Related to this equipment, at the end of 2020 the company will record (enter 1, 2, 3, or 4 that represents the correct answer):

1. a deferred tax asset of $42,000

2. a deferred tax liability of $42,000

3. a deferred tax asset of $138,000

4. a deferred tax liability of $138,000