The records for Ivanhoe Co. show this data for 2021: ● Gross profit on installment sales recorded on the books was $460,000. Gross profit from collections of installment receivables was $320,000. ● Life insurance on officers was $4,200. ● Machinery was acquired in January for $340,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Ivanhoe may deduct 14% for 2021. ● Interest received on tax exempt Iowa State bonds was $9,400. ● The estimated warranty liability related to 2021 sales was $22,000. Repair costs under warranties during 2021 were $14,000. The remainder will be incurred in 2022. ● Pretax financial income is $640,000. The tax rate is 20%. Prepare a schedule starting with pretax financial income and compute taxable income. Schedule of Pretax Financial Income and Taxable Income for 2021 $ $ Prepare the journal entry to record income taxes for 2021. Account Titles and Explanation Debit Credit

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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.