Black Company, organized on January 2, 2017, had pre-tax accounting income of $500,000 and taxable income of $800,000 for the year ended December 31, 2017. The only temporary difference is accrued product warranty costs, which are expected to be paid as follows:
2018...................................$100,000
2019.....................................50,000
2020.....................................50,000
2021....................................100,000
Circumstances indicate that it is highly likely that Black will have taxable income in the future. It had no temporary differences in prior years. The enacted income tax rate is 35%.
Required:
1. In Black's December 31, 2017, balance sheet, how much should the deferred tax asset be?
2. Suppose that as of December 31, 2017, a newly enacted law called for the tax rate to change to 40%, effective January 1, 2019. Then what would be the amount of the deferred tax asset at December 31, 2017?