• The following represents information about the first several years of operations.

• Year 2, financial income before tax: $100,000
• Warranty – Year one the company recorded warranty expense of $10,000. It will be paid in years two and three. Year two warranty expense was $8,000 to be paid in years three and four.
• In year two, the company accrued $15,000 for fines for an environmental spill which will be paid in year three.
• In year two, the company recognized $6,000 of municipal interest income.
• Deferred revenue in year one was $30,000 to be recognized in year two for book purposes.
• Company purchased a truck in year one for $33,000. It is depreciated over three years, 0 residual value, straight-line for book purposes. For tax purposes the company is allowed to expense the entire amount in the first year.
• DTA at the beginning of year two is $12,000.
• DTL at the beginning of year two is $6,600.
• The tax rate in years one and two was 30%. At the end of year two, Congress approved a tax rate increase to 40% for future years.

You were hired at the beginning of YEAR TWO. The person who did the work for year one, a former accountant, was promoted. You are confident it was done correctly in the prior year.

• Show how the beginning balance in the deferred tax liability account at year two was computed.

• Prepare a tax schedule for year two similar to that we did in class that computes taxes payable and ending balances in the deferred tax asset and deferred tax liability accounts