1. For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included meals and entertainment expense of $8 and $20 in depreciation expense. For income tax purposes, MACRS depreciation amounted to $23.

1) What type of differences, permanent differences or temporary differences, does Centipede Corp. have for the current year?

2) Prepare Centipedes journal entry to recognize income taxes payable for the current year. Assume there were no other temporary or permanent differences. Centipedes tax rate for all relevant years is 40%.

3) Centipedes comparative balance sheets for two previous years show the following balances for deferred tax assets and liabilities:

12/31/06 12/31/05

Deferred Tax Asset $3 million $1.4 million

Deferred Tax Liability $6 million $4.8 million

Prepare Centipedes deferred tax journal entry for the year ended 12/31/06. Note that you do not have enough information to determine how Centipede calculated its DTA and DTL balances.