During Its First Year of Operations, 2010, the Hico Company $\begin{array}{cc}\text { Income Tax Expense } & 42,000 \\\text { Deferred Tax Asset } & 42,000\end{array}$

Multiple Choice

During its first year of operations, 2010, the Hico Company reported both a pretax financial and a taxable loss of $200, 000.The income tax rate is 30% for the current and future years.Due to a sufficient backlog of sales orders, Hico did not establish a valuation allowance to reduce the $60, 000 deferred tax asset.However, early in 2011, one major customer, representing 60% of the 2011 year-end sales backlog, went bankrupt.Hico now believes that it is more likely than not that 70% of the deferred tax asset will not be realized.The entry to record the valuation allowance would be

A)
$\begin{array}{cc}\text { Income Tax Expense } & 42,000 \\\text { Deferred Tax Asset } & 42,000\end{array}$

B)
$\begin{array} { c c } \text { Income Tax Benefit from Operating } \\\text { Loss Carryforward } & 42,000 \\\text { Deferred Tax Asset } & 42,000\end{array}$
C)
Income Tax Expense $\quad$ $\quad$ $\quad$$42,000$
Allowance to Reduce Deferred
Tax Asset to Realizable Value $\quad$ $\quad$ $\quad$ 42,000
D)
Allowance to Reduce Deferred Tax
Asset to Realizable Value $\quad 42,000$
Income Tax Expense $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 42,000