Cloud Corp. began operations in 20X8. In its first year, the company had a net operating loss before tax for accounting purposes of $200,000. Depreciation was $230,000, and CCA was $250,000. The company claimed CCA in 20X8. Warranty costs expensed in the period were $150,000, and actual warranty costs incurred were $120,000. In 20X9, Cloud had taxable income before the use of the tax loss carryforward of $480,000. This was after adding back $230,000 of depreciation and deducting $280,000 of CCA, and adding back $230,000 of warranty costs accrued and deducting $210,000 of warranty costs incurred. The income tax rate is 38% in both years. Capital assets had an original cost of $2,500,000 in 20X8.

Required:
1. Prepare a journal entry or entries to record income tax in 20X8 and 20X9, assuming that the likelihood of using the tax loss carryforward is assessed as probable in 20X8. Also prepare the SCI section showing earnings before income tax and income tax expense for 20X8 and 20X9.
2. Repeat requirement 1, assuming that the likelihood of using the tax loss carryforward is not probable. In addition, deferred income tax asset amounts do not meet recognition criteria and cannot be recorded.
3. Which assessment—probable or not probable—seems more logical in 20X8? Discuss.