Nadal Inc. has two temporary differences at the end of 2008. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadalâ accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows.
As of the beginning of 2008, the enacted tax rate is 34% for 2008 and 2009, and 38% for 2010â€“2012. At the beginning of 2008, the company had no deferred income taxes on its balance sheet. Taxable income for 2008 is $500,000. Taxable income is expected in all future years.
(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
(b) Indicate how deferred income taxes would be classified on the balance sheet at the end of2008.