Pito Company has been in operation for several years. During those years the company has been profitable, and it expects to continue to be profitable in the foreseeable future. At the beginning of 2007, the company has a deferred tax asset of $360 pertaining to one future deductible amount. During 2007, the company earned taxable income of $51,000, which was taxed at a rate of 30% (no change in the tax rate has been enacted for future years). At the end of 2007, the book value of the current liability to which the deferred tax asset relates for financial reporting purposes exceeded the book value for income tax purposes by $6,000.
Required
1. Prepare the income tax journal entry of the Pito Company at the end of 2007.
2. Show how the deferred tax asset is reported on the Pito Company’s December 31, 2007 balance sheet.