Cadbury Co. began operations in 2020. The following data relates to Cadbury ’s 2020 operations: Pretax financial income is $1,000,000. The tax rate is 21%. Cadbury  estimates bad debt expense on 2020 accounts receivable was $35,000. Tax does not deduct the bad debts until an accounts receivable is determined to be uncollectible. Machinery was acquired in January for $500,000. Tax depreciation exceeds GAAP depreciation by 100,000. Interest received on tax-exempt FloridaState bonds was $30,000.     Prepare the journal entry to record income tax payable, income tax expense, and any deferred taxes 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.