Saginaw Incorporated completed its first year of operations with a pretax loss of $700,000. The tax return showed a net operating loss of $875,000, which the company will carry forward. The $175,000 booktax difference results from excess tax depreciation over book depreciation. Management has determined that it should record a valuation allowance equal to the net deferred tax asset. Assume the current tax expense is zero.

Note: If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.

Required:

1. Prepare the journal entry to record the deferred tax consequences for recognition of the current year NOL before considering the valuation allowance.
2. Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference.
3. Prepare the journal entry to record the deferred tax consequences of the valuation allowance.

• 1

  Record the deferred tax consequences for recognition of the current year NOL before considering the valuation allowance.

• 2

  Record the deferred tax consequences arising from book-tax depreciation difference.

• 3

  Record the valuation allowance.