TPW, a calendar year taxpayer, sold land with a $578,000 tax basis for $865,000 in February. The purchaser paid $86,500 cash at closing and gave TPW an interest-bearing note for the $778,500 remaining price. In August, TPW received a $62,325 payment from the purchaser consisting of a $38,925 principal payment and a $23,400 interest payment. In the first year after the year of sale, TPW received payments totaling $119,650 from the purchaser. The total consisted of $77,850 principal payments and $41,800 interest payments.

1. For the first year after the year of sale, compute the difference between TPWs book and tax income resulting from the installment sale method.
2. Is this difference favorable or unfavorable?
3. Using a 21 percent tax rate, determine the effect of the difference on the deferred tax asset or liability generated in the year of sale.