1. Two independent situations are described below. Each situation has future deductible amounts and/or future taxable amounts produced by temporary differences.

Situation 1 2 Taxable income $40,000 $80,000 Amounts at year-end:

Future deductible amounts 5,000 10,000 Future taxable amounts –0– 5,000 Balances at beginning of year:

Deferred tax asset 1,000 4,000 Deferred tax liability –0– 1,000 The enacted state and Federal tax rate is 25% for both situations. Determine the income tax expense for the year.

Situation 1 Situation 2

a. $10,000 $20,000

b. $9,750 $21,750

c. $250 $500

d. $0 $0