At the end of Year 1, a company has a Deferred Tax Asset (DTA) of $100,000. Management determines that it is 'more likely than not' that only $60,000 of the DTA will be realized. What journal entry is required?

Debit Income Tax Expense $60,000; Credit Valuation Allowance $60,000

Debit Deferred Tax Asset $40,000; Credit Income Tax Benefit $40,000

Debit Income Tax Expense $40,000; Credit Valuation Allowance $40,000

Debit Valuation Allowance $40,000; Credit Income Tax Benefit $40,000