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Problem 4 (20 points) Facts: The following information pertains to Hemsworth Inc.: The Allowance for Doubtful Accounts (bad debts) as of December 31, Year 1 was $11,000. During Year 2, uncollectible accounts totaling $5,000 were written off. An expense for bad debts of $15,000 was recognized at the end of Year 2, resulting in a Year 2 ending balance in Allowance for Doubtful Accounts of $21,000. At the end of Year 2, there were net unrealized gains on trading securities of $8,000. There were no unrealized gains/losses on trading securities at the beginning of Year 2. Hemsworth Inc. uses straight-line depreciation for GAAP and MACRS for income tax purposes. Accumulated depreciation and Year 2 depreciation expense are summarized below: GAAP Tax Accumulated Depreciation, end of Year 1 $1,314,000 $2,018,000 Year 2 Depreciation Expense 196,000 259,000 Accumulated Depreciation, end of Year 2 $1,510,000 $2,277,000 - Other miscellaneous book-tax differences are as follows: o Non-deductible meals and entertainment expenses Tax-exempt interest income $12,000 $15,000 Ending Year 1 net deferred taxes were equal to a $50,000 net deferred tax liability, comprised of deferred tax assets equal to $100,000 and deferred tax liabilities equal to $150,000. Pre-tax accounting income in Year 2 equals $678,000. Bullets - Hemsworth's tax rate is 20%. Required: 1. Record the journal entry necessary to recognize income tax expense for Hemsworth Inc. for Year 2. (14 points) 2. What is Hemsworth's net deferred tax balance on the Year 2 ending balance sheet? (Don't worry about breaking out currenton-current. Just provide the net amount and whether it is a net asset or liability.) (6 points)