The only temporary difference between taxable income and accounting income for Nutty Professors Inc. relates to the timing of depreciation of a piece of special machinery purchased on January 1, 20x2.

The cost of the machine is $600,000

The company uses the straight-line method and depreciates it over 4 years for financial reporting. There is no salvage value.

- For tax purposes, the machine is to be depreciated straight-line over 2 years. There is no salvage value.

- Nutty Professors also paid a fine of $4,000 for environmental violations in 20x2. It reported the fine as an expense on the income statement. However, the fine is not tax deductible.

Pre-tax financial income reported by the company is $500,000 for 20x2 and 700,000 for 20x3.

Enacted tax rate is 40% in 20x2. For 20x3 and beyond, enacted tax rate is reduced to 30%

Must show computations.

For 20x2

Income tax payable =

Deferred tax asset/liability (choose one) =

Income tax expense =

Effective tax rate =

For 20x3

Income tax payable =

Deferred tax asset/liability (choose one) =

Income tax expense =

Effective tax rate =