Question
Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 Revenues $ 944 $ 1,036 Expenses 800 856 Pretax accounting income
Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):
2021 | 2022 | ||||||
Revenues | $ | 944 | $ | 1,036 | |||
Expenses | 800 | 856 | |||||
Pretax accounting income (income statement) | $ | 144 | $ | 180 | |||
Taxable income (tax return) | $ | 100 | $ | 214 | |||
Tax rate: 25% | |||||||
- Expenses each year include $62 million from a two-year casualty insurance policy purchased in 2021 for $124 million. The cost is tax deductible in 2021.
- Expenses include $2 million insurance premiums each year for life insurance on key executives.
- Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $63 million and $79 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $57 million ($42 million collected in 2020 but not recognized as revenue until 2021) and $63 million, respectively. Hint: View this as two temporary differencesone reversing in 2021; one originating in 2021.
- 2021 expenses included a $46 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022.
- During 2020, accounting income included an estimated loss of $36 million from having accrued a loss contingency. The loss was paid in 2021, at which time it is tax deductible.
- At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.
Problem 16-8 Part 2
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 2021.
repare a schedule that reconciles the difference between pretax accounting income and taxable income. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
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