Question
Arnold Industries has pretax accounting income of $38 million for the year ended December 31, 2016. The tax rate is 40%. The only difference between
Arnold Industries has pretax accounting income of $38 million for the year ended December 31, 2016. The tax rate is 40%. The only difference between accounting income and taxable income relates to an operating lease in which Arnold is the lessee. The inception of the lease was December 28, 2016. An $8 million advance rent payment at the inception of the lease is tax-deductible in 2016 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term. Assume a new tax law is enacted in 2017 that causes the tax rate to change from 40% to 30% beginning in 2018. Complete the following table given below and prepare the appropriate journal entry to record Arnolds income taxes for 2017
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