Facts:

The following information pertains to Hemsworth Inc.:

-The Allowance for Doubtful Accounts (bad debts) as of December 31, Year 1 was $11,000. During Year 2, uncollectible accounts totaling $5,000 were written off. An expense for bad debts of $15,000 was recognized at the end of Year 2, resulting in a Year 2 ending balance in Allowance for Doubtful Accounts of $21,000.

-At the end of Year 2, there were net unrealized gains on trading securities of $8,000. There were no unrealized gains/losses on trading securities at the beginning of Year 2.

-Hemsworth Inc. uses straight-line depreciation for GAAP and MACRS for income tax purposes. Accumulated depreciation and Year 2 depreciation expense are summarized below:

GAAPTax

Accumulated Depreciation, end of Year 1$1,314,000$2,018,000

Year 2 Depreciation Expense196,000259,000

Accumulated Depreciation, end of Year 2$1,510,000$2,277,000

-Other miscellaneous book-tax differences are as follows:

oNon-deductible meals and entertainment expenses$12,000

oTax-exempt interest income$15,000

-Ending Year 1 net deferred taxes were equal to a $50,000 net deferred tax liability, comprised of deferred tax assets equal to $100,000 and deferred tax liabilities equal to $150,000.

-Pre-tax accounting income in Year 2 equals $678,000.

-Hemsworth's tax rate is 20%.

Required:

1.Record the journal entry necessary to recognize income tax expense for Hemsworth Inc. for Year 2. (14 points)

2.What is Hemsworth's net deferred tax balance on the Year 2 ending balance sheet? (Don't worry about breaking out current/non-current. Just provide the net amount and whether it is a net asset or liability.) (6 points)