An entity has no permanent or temporary differences and pays no state income tax. In 20X1, its first year of operations, the entity reported a $100,000 taxable loss. Assume the tax rate is 40%. Accordingly, the entity recognized a deferred tax asset of $40,000. Under Topic 740, it may be necessary for the entity to recognize a valuation allowance. The valuation allowance should report which of the following? 1 A credit balance equal to the amount of the deferred tax asset the entity does not expect to realize 2 A credit balance equal to the amount of the deferred tax asset the entity expects to realize Towing 3 A debit balance equal to the amount of the deferred tax asset the entity does not expect to realize 4 A debit balance equal to the amount of the deferred tax asset the entity expects to realize