Zens Manufacturing makes koto tone rings for popular kotomakers. To expand capacity, the company decided to lease a new machine used in tone ring turning and plating from SJP.

Information of the lease terms:

Lease Payment - $65,000 semi-annually at the beginning of each period

Lease Term - 5 years with semi-annual payments, beginning June 30, 2013

Residual Value - $0

Bargain Purchase Option - No

Expected Life of Machine - 5 Years

Implicit Interest Rate - 12%

Fair Value and cost of Asset - $507,110

1) Assume the lessee made a down payment to cover the initial lease payment at the end of 2012 to secure the lease and prior to receiving the asset, creating a temporary book-tax difference for the lessor (this is the only book-tax difference). Using a tax rate of 40%, calculate the amount of the DTA/DTL created for the lessor and prepare the appropriate journal entry to record income taxes at the end of 2012 for the lessor (PTAI of $2.2 million).