2. Two independent situations are described below. Each involves 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 change in the deferred tax asset balance for the year.

Situation 1 Situation 2

a. $5,000 $10,000

b. $250 $1,500

c. $1,250 $2,500

d. $0 $0