Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 Revenues $ 956
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Question:
Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):
2021 | 2022 | ||||||
Revenues | $ | 956 | $ | 1,048 | |||
Expenses | 812 | 868 | |||||
Pretax accounting income (income statement) | $ | 144 | $ | 180 | |||
Taxable income (tax return) | $ | 88 | $ | 214 | |||
Tax rate: 25% | |||||||
- Expenses each year include $74 million from a two-year casualty insurance policy purchased in 2021 for $148 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 $75 million and $91 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $69 million ($54 million collected in 2020 but not recognized as revenue until 2021) and $75 million, respectively. Hint: View this as two temporary differencesone reversing in 2021; one originating in 2021.
- 2021 expenses included a $58 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 $48 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.
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.
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