The following information is available for Blue Corporation for 2019 (its first year of operations). 1.   Excess of tax depreciation over book depreciation, $36,800. This $36,800 difference will reverse equally over the years 2020–2023. 2.   Deferral, for book purposes, of $20,300 of rent received in advance. The rent will be recognized in 2020. 3.   Pretax financial income, $322,400. 4.   Tax rate for all years, 20%. Compute taxable income for 2019. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2019. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming taxable income of $320,100.

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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.