A company incurred a net operating loss of $582,000 in 2011. Combined income for 2008, 2009, and
2010 was $464,000. The tax rate for all years is 35%. Assume that it is more likely than not that the entire tax loss carryforward will not be realized in future years. Assume now that the company earns taxable income of $40,000 in 2012 and that at the end of 2012 there is still too much uncertainty to recognize a future tax asset.

Prepare the journal entries that are necessary at the end of 2012 assuming that the company does not use a valuation allowance account.

Prepare the journal entries that are necessary at the end of 2012 assuming that the company does use a valuation allowance account.