ABC Inc. is in the business of airframe maintenance, modification and retrofit services, avionics and aircraft interior installations, the overhaul and repair of aircraft engines, and other related services.
The following are excerpted from its income statement for the year ended December 31, 2017.
($ in thousands)__________________________________2017
Earnings (loss) before income taxes........................$10,891
Income tax benefit (provision)...............................(3,268)
Net earnings (loss).............................................$ 7,623
The details for the income tax expense or provision follow.
Income Tax Expense___________________________________2017
Current..................................................................$1,756
Deferred..................................................................1,512
Income tax expense...................................................$3,268
Because a goodwill impairment charge taken under GAAP may not be deducted for tax purposes, the company's tax expense was higher by $1,076 than would be expected based on the statutory tax rate of 35%. State taxes (net of the federal benefit) added another $927 to the tax expense. However, the reduction in the valuation allowance decreased the accounting income tax expense. In addition, several other items caused the tax expense to deviate from the tax liability.
Because these items by themselves are immaterial, no separate breakdowns are available.
The following breakdowns are available for the balance sheet values of deferred tax assets and liabilities:

The book value of the company's inventories increased from $91,130 at the end of 2016 to $127,777 at the end of 2017.
Required:
1. Prepare a schedule reconciling the statutory and effective tax rates of ABC Inc. for the year ended 2017.
2. Provide the journal entry to record the income tax expense for 2017, showing separately the effects on deferred tax asset, valuation allowance, and deferred tax liability.
3. For each component of deferred tax asset/liability, provide possible reasons for the change in its value from 2016 to 2017.

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December 31, $ in thousands) 2017 2016 Deferred Tax Assets $ 977 1,070 3,523 1,679 Accounts receivable and financial statement allowances Accrual for costs of restructuring Others Inventories, principally due to additional costs inventoried for tax purposes Employee benefits, principally due to accrual for financial reporting purposes 9,814 13,510 5,392 8,750 4,312 5,020 23,634 19,257 47,652 49.286 Accrual for disposal of discontinued operations Gross deferred tax assets December 31, $ in thousands) 2017 2016 Less: Valuation allowance (13,588 (5,710) 34064 33,576 Total deferred tax asset Deferred Tax Liability Plant and equipment Others 7.770) (8,993) (5,187) (1,964) 12,957) (10,957) Total de ferred tax liability Net deferred tax asset $21.107 $22.619