Temporary Differences, Deferred Tax Liability. Blue Collar Clothing, Inc. acquired a new fabric-cutting machine at the beginning of the current year. The machine cost $600,000, with no residual value expected. Blue Collar uses the straight-line method for financial reporting assuming a six-year useful life. The firm classifies the equipment as five-year MACRS property for tax purposes using the following percentages. The company is subject to a 40% income tax rate and has no other book-tax differences. We present Blue Collars income before tax and depreciation below: Required (Show all supporting computations.)

a.Prepare all journal entries required to record Blue Collars income tax provision for years 3 and 4.

b.What is the balance of the deferred tax account at the end of year 3?

c.What is reported net income for years 3 and 4?