Year 1	Year 2	Year 3
GAAP Net Income Before Odd Items	1,000	1,000	1,100
Non-Deductible Expenses (note 1)_	15	20	10
Depreciation Expense (note 2)	25	25	25
Rents Collected in Advance (note 3)	20	20	20
GAAP Net Income Before Tax	1,010	1,015	1,105

The tax rate is expected to be 20% for all years.

• Note 1: These amounts represent expenses that will never be deductible on the tax return.
• Note 2: The company purchased an asset for $100 in Year 1. The entire amount was deductible on the tax return in year 1. For GAAP, the company was using straight-line over four years.
• Note 3: The company collected revenue in advance in the amount of $80 in year 1. For GAAP purposes, the income will be allocated evenly over the next four years. The entire $80 is taxable in year 1.

Required

• Calculate taxable income for all three years
• Calculate income tax payable for all three years
• Calculate the ending balance in deferred tax liability for all three years
• Calculate the ending balance in the deferred tax asset for all three years
• Calculate the income tax expense for all three years
• Prepare the journal entry to record income tax expense for year 2

	Year 1	Year 2	Year 3
Taxable Income
Income Tax Payable
Deferred Tax Liability
Deferred Tax Asset
Income Tax Expense

Journal Entry Year 2

Date	Accounts	Debit	Credit
12-31-Year 2