Thad Corporation has compiled its 2012 financial statements. Included in the Long-Term Liabilities category of the balance sheet are the following amounts:

_________________________    2012         2011

Deferred tax.....................$180............$200

Included in the income statement are the following amounts related to income taxes:

________________________        2012         2011

Income before tax..............$500.............$400

Tax expense.......................100..............150

Net income......................$400.............$250

Required

1. Determine the effect on the accounting equation in 2012 for income tax expense, deferred tax, and income tax payable.

2. Assume that a stockholder has inquired about the meaning of the numbers recorded and disclosed about deferred tax. Explain why the Deferred Tax liability account exists.