Paula Coal Companypresents the following information for 2022 and 2023.

2022

• Sales on account in the amount of $645,000
• Warranty expense and associated liability in the amount of $125,000
• Assume that these are the only revenue and expenses reported by the company.

2023

• Sales on account in the amount of $225,000
• Actual warranty repairs made in the amount of $65,000
• Assume that these are the only revenue and expenses reported by the company.

Required for Part B:

1. Prepare the journal entries for 2022 and 2023 to record the income tax effects of the above transactions. Assume a 40% tax rate and that it is more likely than not that future income will be sufficient to realize all future tax benefits.

2. For 2022 only assume a 40% tax rate and that it is more likely than not that only $25,000 of future income is expected to be realized. Prepare the journal entry to record the tax provision for 2022.