Terry Corporation reported fair values for its minority-passive equity investment portfolio at the last four year-ends as shown in the table below. The company did not buy or sell any investments in 20x1, 20x2, or 20x3. No dividends are paid on any of the securities in the portfolio. The aggregate cost of the securities in the portfolio is $290,000. The corporate tax rate is 21%.

Fair value of portfolio at December 31 20x0 $325,000 20x1 $320,000 20x2 $285,000 20x3 $337,000

Required:

1. What amount of deferred tax asset or deferred tax liability does Terry report at December 31, 20x0, related to its portfolio?

2. Prepare the journal entries used to record the income tax effects of the portfolio in 20x1, 20x2, and 20x3. Assume Terry has substantial income from other sources and therefore no valuation allowance.

3. Suppose Terry sells its investment in Myra Company common stock during 20x4 for $85,000. The investment had cost Terry $60,000 and had a fair value at December 31, 20x3, of $82,000. Prepare the journal entry to record the income tax effect of the sale.