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Arndt, Inc., reported the following for 2018 and 2019 ($ in millions): 2018 2019 Revenues $ 996 $ 1,031 Expenses 784 824 Pretax accounting income

Arndt, Inc., reported the following for 2018 and 2019 ($ in millions):

2018 2019
Revenues $ 996 $ 1,031
Expenses 784 824
Pretax accounting income (income statement) $ 212 $ 207
Taxable income (tax return) $ 210 $ 230
Tax rate: 40%

  1. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2018 for $60 million. The cost is tax deductible in 2018.
  2. Expenses include $3 million insurance premiums each year for life insurance on key executives.
  3. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2018 and 2019 were $36 million and $48 million, respectively. Subscriptions included in 2018 and 2019 financial reporting revenues were $28 million ($10 million collected in 2017 but not recognized as revenue until 2018) and $36 million, respectively. Hint: View this as two temporary differencesone reversing in 2018; one originating in 2018.
  4. 2018 expenses included a $22 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold in 2019.
  5. During 2017, accounting income included an estimated loss of $5 million from having accrued a loss contingency. The loss was paid in 2018 at which time it is tax deductible.
  6. At January 1, 2018, Arndt had a deferred tax asset of $7 million and no deferred tax liability.

2. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. Using the schedule, prepare the necessary journal entry to record income taxes for 2018.

[The following information applies to the questions displayed below.] Arndt, Inc., reported the following for 2018 and 2019 ($ in millions):

2018 2019
Revenues $ 996 $ 1,031
Expenses 784 824
Pretax accounting income (income statement) $ 212 $ 207
Taxable income (tax return) $ 210 $ 230
Tax rate: 40%

  1. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2018 for $60 million. The cost is tax deductible in 2018.
  2. Expenses include $3 million insurance premiums each year for life insurance on key executives.
  3. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2018 and 2019 were $36 million and $48 million, respectively. Subscriptions included in 2018 and 2019 financial reporting revenues were $28 million ($10 million collected in 2017 but not recognized as revenue until 2018) and $36 million, respectively. Hint: View this as two temporary differencesone reversing in 2018; one originating in 2018.
  4. 2018 expenses included a $22 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold in 2019.
  5. During 2017, accounting income included an estimated loss of $5 million from having accrued a loss contingency. The loss was paid in 2018 at which time it is tax deductible.
  6. At January 1, 2018, Arndt had a deferred tax asset of $7 million and no deferred tax liability.

4. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. Using the schedule, prepare the necessary journal entry to record income taxes for 2019.

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