Riverbed Company reports pretax financial income of $63,900 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 $17,600.2. Rent collected on the tax return is greater than rent recognized on the income statement by $23,300.3. Fines for pollution appear as an expense of $11,800 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.Compute the effective income tax rate for 2020.

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Parrain Parrain · Answer 1 · 2022-04-07T12:35:01+02:00

Based on the depreciation, the rent collected, and other factors, the taxable income is $81,400 and the income taxes payable is $24,420.

Journal entry for income tax expense, deferred income taxes, and income taxes payable is:

Date Account title Debit Credit

2020 Income tax expenses $22,710

Deferred tax asset $ 6,990

Income tax payable $24,420

Deferred tax liability $ 5,280

The effective income tax rate is 35.54%.

The taxable income is:

= Pretax income + Rent collected + Fines for pollution - Depreciation

= 63,900 + 23,300 + 11,800 - 17,600

= $81,400

Income tax payable:
= 81,400 x 30%

= $24,420

Deferred tax asset:

= 23,300 x 30%
= $6,990

Deferred tax liability:

= 17,600 x 30%
= $5,280

Effective income tax rate:

= Income tax expenses / Income before tax

= 22,710 / 63,900

= 35.54%

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