Question: Mansfield Corporation purchased a new warehouse at the beginning of Year 1 for $1,010,000. The expected life of the asset is 25 years with no residual value. The company uses straight-line depreciation for financial reporting purposes and accelerated depreciation for tax purposes (the accelerated method results in $101,000 of depreciation each year). The company's federal income tax rate is 34%. The company determined its income tax obligations for Year 1 and Year 2 were $407,000 and $632,000, respectively.
1) Compute the deferred income tax amount reported on the balance sheet for each year.
2) Is the deferred income tax a liability or an asset?
3) Compute income tax expense for each year.