Cheng Company computed taxable income of $8,000 for the first year of its operations ended December 31, 2013. Tax depreciation exceeded depreciation for financial reporting purposes by $24,000. Receipt of $13,000 cash was reported as revenue for tax purposes but is reported as a current liability, Unearned Revenue, for financial reporting. The enacted tax rate for 2013 and all future years is 35%.
Instructions:
1. Prepare the journal entries to record income taxes for 2013. Assume that it is more likely than not that future taxable income will be sufficient to allow for the full realization of any deferred tax assets.
2. Repeat (1), assuming that it is more likely than not that future taxable income will be zero, exclusive of the expected reversal of the depreciation temporary difference.