1. Snapchats gross deferred tax assets increased during 2018. What two items explain the majority of the increase?
2. In 2017, Snapchat reported deferred tax liabilities. Explain how this liability arose.
3. Why does the company record a valuation allowance? Given the size of the 2018 allowance, what is the companys expectation of future pretax income?
4. Explain how the valuation allowance affected 2018 net income.
5. Use the financial statement effects template to record tax expense for fiscal year 2018 along with the changes in both deferred assets and liabilities and the valuation allowance.

P10-46. Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template) Snapchat Inc. reports total tax expense of $2,547 thousand on its income statement for year ended December 31, 2018, and paid cash of $3,958 thousand for taxes and decreased taxes payable by $755 thousand. The tax footnote in the company's 10-K filing reports the following deferred tax assets and liabilities information. The domestic and foreign components of pre-tax loss were as follows: 2017 2018 Year Ended December 31 (in thousands) Domestic. Foreign ... Loss before income taxes. $ (969,922) (283,442) $(1,253,364) $(3,027,580) (435,828) $(3,463,408) The significant components of net deferred tax balances were as follows: 2017 2018 $ 10,534 2,142 140,771 396,604 473,110 124,078 December 31 (in thousands) Deferred tax assets Accrued expenses Deferred revenue Intangible assets... Stock-based compensation. Net operating losses... Tax credit carryforwards. Property and equipment Other..... Total deferred tax assets.. Deferred tax liability Property and equipment.. Total deferred tax liabilities .... Total net deferred tax assets before valuation allowance Valuation allowance .. Net deferred taxes $ 21,056 976 140,494 254,255 849,224 235,300 203 322 $ 1,501,830 2,015 $ 1,149,254 $ $ (5,883) (5,883) 1,143,371 (1,144,543) $ (1,172) 1,501,830 (1,502,346) $ (516) P10-46. Analyzing and Interpreting Tax Footnote (Financial Statement Effects Template) Snapchat Inc. reports total tax expense of $2,547 thousand on its income statement for year ended December 31, 2018, and paid cash of $3,958 thousand for taxes and decreased taxes payable by $755 thousand. The tax footnote in the company's 10-K filing reports the following deferred tax assets and liabilities information. The domestic and foreign components of pre-tax loss were as follows: 2017 2018 Year Ended December 31 (in thousands) Domestic. Foreign ... Loss before income taxes. $ (969,922) (283,442) $(1,253,364) $(3,027,580) (435,828) $(3,463,408) The significant components of net deferred tax balances were as follows: 2017 2018 $ 10,534 2,142 140,771 396,604 473,110 124,078 December 31 (in thousands) Deferred tax assets Accrued expenses Deferred revenue Intangible assets... Stock-based compensation. Net operating losses... Tax credit carryforwards. Property and equipment Other..... Total deferred tax assets.. Deferred tax liability Property and equipment.. Total deferred tax liabilities .... Total net deferred tax assets before valuation allowance Valuation allowance .. Net deferred taxes $ 21,056 976 140,494 254,255 849,224 235,300 203 322 $ 1,501,830 2,015 $ 1,149,254 $ $ (5,883) (5,883) 1,143,371 (1,144,543) $ (1,172) 1,501,830 (1,502,346) $ (516)