The following facts relate to XYZ Corporation. 1. Deferred tax liability, January 1, 2012, $0. 2. Deferred tax asset, January 1, 2012, $24,000. 3. Taxable income for 2014, $265,000. 4. Pretax financial income for 2014, $345,000. 5. Cumulative temporary difference at December 31, 2014, giving rise to future taxable amounts, $140,000. 6. Cumulative temporary difference at December 31, 2014, giving rise to future deductible amounts, $120,000. 7. Tax rate for all years, 40%. 8. The company is expected to operate profitably in the future. Instructions (a) Compute income taxes payable for 2014. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.

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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.