The question is asking for the deferred income tax liability at the end of year #2. The balance in the DTL is the CUMMULATIVE differences times the future tax rate of when they are expected to reverse. At the end of year #1, there is a DTL of $1,000,000 X 30% = $300,000. At the end of year #2, the CUMULATIVE temporary differences are $1,000,000 from year #1 plus $1,200,000 from year #2 for a total CUMULATIVE temporary difference is $2,200,000. Therefore, the DTL at the end of year #2 is $2,200,000 X 30% = $660,000.