Riverbed Company reports pretax financial income of $65,000 for 2020. The following items cause taxable income to be different than pretax financial income. 1.   Depreciation on the tax return is greater than depreciation on the income statement by $16,400. 2.   Rent collected on the tax return is greater than rent recognized on the income statement by $23,100. 3.   Fines for pollution appear as an expense of $11,200 on the income statement. Riverbed’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2020. Compute taxable income and income taxes payable for 2020. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.” Compute the effective income tax rate for 2020.

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.