Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reported no other temporary or permanent book-tax differences. The pertinent U.S. tax rate is 35%, and Prance earns an after tax rate of return on capital of 8%.
a. Compute Prance’s total income tax expense, current income tax expense, and deferred income tax expense.
b. Determine the end-of-year balance in Prance’s deferred tax asset and deferred tax liability balance sheet accounts?