(Two Temporary Differences, Multiple Rates, Future Taxable Income) Nadal Inc. has two tem- porary differences at the end of 2006. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal's accounting department has developed a sched- ule of future taxable and deductible amounts related to these temporary differences as follows.

As of the beginning of 2006, the enacted tax rate is 34% for 2006 and 2007, and 38% for 2008-2011. At the beginning of 2006, the company had no deferred income taxes on its balance sheet. Taxable income for 2006 is $500,000. Taxable income is expected in all future years.
Instructions

(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2006.

(b) Indicate how deferred income taxes would be classified on the balance sheet at the end of 2006.

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2007 2008 2009 2010 Taxable amounts $40,000 $50,000 $60,000 $80,000 Deductible amounts (15,000) (19,000) $40,000 $35,000 $41,000 $80,000