1. A valuation allowance expresses in the financial statements that there exists uncertainty that the taxpayer will be able to recover a deferred tax asset. TRUE/FALSE

2. Cold, Inc., reported a $100,000 total tax expense for financial statement purposes in year 1. This total expense consisted of $150,000 in current tax expense and a deferred tax benefit of $50,000. The deferred tax benefit consisted of $90,000 in deferred tax assets reduced by a valuation allowance of $40,000. In year 2, Cold reports $600,000 in book net income before tax. Cold records no other permanent or temporary book-tax differences. At the end of year 2, Colds management determines that the existing valuation allowance of $40,000 should be reduced to zero. What is Colds total tax expense for year 2?

a. $250,000

b. $126,000

c. $86,000

d. $40,000