Refer to the information in problem 40 for Arnold Corporation.
a. Identify which of Arnold Corporation's book/tax differences result in a deferred tax asset or a deferred tax liability.
b. Prepare the journal entry to record the federal tax expense and federal tax liability for Arnold Corporation.
In problem
Arnold Corporation (a calendar-year, accrual-basis taxpayer) reported $500,000 pre-tax income on its financial statements for the year. In examining its records, you find the following:
• $3,000 of interest income from municipal bonds
• $200 of expenses incurred in earning the interest income from the municipal bonds
• Arnold wrote off $900 of accounts receivable as uncollectible and added $3,000 to its allowance for bad debts this year.
• Arnold deducted $4,000 for meals and entertainment expenses on its financial statements.
• Straight-line depreciation for financial reporting is $7,000; MACRS tax depreciation is $11,000
• Arnold paid $2,800 in premiums on key officer life insurance policies for which it is the beneficiary
• Arnold collected $50,000 from a life insurance policy due to the death of a key officer
• Arnold paid $2,500 in fines for violating Environmental Protection Agency anti-pollution regulations.