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

	2018	2019
Revenues	$888	$983
Expenses	760	800
Pretax accounting income (income statement)	$128	$183
Taxable income (tax return)	$120	$200
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 $2 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 $33 million and $35 million, respectively. Subscriptions included in 2018 and 2019 financial reporting revenues were $25 million ($10 million collected in 2017 but not recognized as revenue until 2018) and $33 million, respectively. Hint: View this as two temporary differencesone reversing in 2018; one originating in 2018.

4. 2018 expenses included a $17 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 $6 million and no deferred tax liability.

Required:

1. Which of the five differences described are temporary and which are permanent differences? Why?

2. Prepare a schedule that (a) reconciles the difference between pretax accounting income and taxable income and (b) determines the amounts necessary to record income taxes for 2018. Prepare the appropriate journal entry.