Faro Inc. began operating on January 1, 2013. At the end of the first year of operations, Faro reported $400,000 income before income taxes on its income statement but only $320,000 taxable income on its tax return. Analysis of the $80,000 difference revealed that $45,000 was a permanent difference and $35,000 was a temporary tax liability difference related to a current asset. The enacted tax rate for 2013 and future years is 35%.
1. Prepare the journal entries to record income taxes for 2013.
2. Assume that at the end of 2014, the accumulated temporary tax liability difference related to future years is $70,000. Prepare the journal entry to record any adjustment to deferred tax liabilities at the end of 2014.