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Exercise 16-18 (Algo) Change in tax rates; calculate taxable income [LO16-2, 16-6] Arnold Industries has pretax accounting income of $64 million for the year ended
Exercise 16-18 (Algo) Change in tax rates; calculate taxable income [LO16-2, 16-6]
Arnold Industries has pretax accounting income of $64 million for the year ended December 31, 2024. The tax rate is 25%. 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, 2024. An $40 million advance rent payment at the inception of the lease is tax-deductible in 2024 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.
Required:
- Complete the following table given below and prepare the appropriate journal entry to record Arnolds income taxes for 2024.
- Prepare the appropriate journal entry to record Arnolds income taxes for 2025. Pretax accounting income was $90 million for the year ended December 31, 2025.
- Assume a new tax law is enacted in 2025 that causes the tax rate to change from 25% to 15% beginning in 2026. Complete the following table given below and prepare the appropriate journal entry to record Arnolds income taxes for 2025.
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