Recording and Reporting Multiple Differences

Condensed income statements for Prince Inc. for Year $1$ and Year $2$ follow.

Additional information

Environmental fines are not deductible for income tax purposes.

Amount collected in Year $1$ related to deferred service revenue $($ $$20,000)$ was taxable in Year $1.$

Accrued warranty costs of $$16,000$ are not deductible for income tax purposes until Year $2$ when the expenditures are made.

Income tax rate is $25\%$ for both years.

At the beginning of Year $1,$ deferred tax asset and liability balances were zero.

Required

Deferred Taxes and Income Tax Payable

a$.$ Prepare schedules to compute the deferred tax balances on December $31$ of Year $1.$

$-$Note: Do not use negative signs with your answers.

b$.$ Compute the increase to income tax payable on December $31$ of Year $1$ and Year $2.$