Nadal Inc. has two temporary 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 schedule of future taxable and deductible amounts related to these temporary differences as follows.

	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

As of the beginning of 2006, the enacted tax rate is 34% for 2006 and 2007, and 38% for 20082011. 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.

Requirements:

1. Do future taxable amounts result in deferred tax assets or deferred tax liabilities?
2. Will the 2008 taxable amount increase or decrease income tax expense?
3. Do future deductible amounts result in deferred tax assets or deferred tax liabilities?
4. Will the 2008 deductible amount increase or decrease income tax expense?
5. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2006.
6. Indicate how deferred income taxes would be classified on the balance sheet at the end of 2006.
7. Do future taxable amounts result in deferred tax assets or deferred tax liabilities?
8. Will the 2008 taxable amount increase or decrease income tax expense?
9. Do future deductible amounts result in deferred tax assets or deferred tax liabilities?
10. Will the 2008 deductible amount increase or decrease income tax expense?
11. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2006