Question
[The following information applies to the questions displayed below.] Arndt, Inc., reported the following for 2016 and 2017 ($ in millions): 2016 2017 Revenues $
[The following information applies to the questions displayed below.] |
Arndt, Inc., reported the following for 2016 and 2017 ($ in millions): |
2016 | 2017 | |||||
Revenues | $ | 896 | $ | 993 | ||
Expenses | 6 | 6 | ||||
Pretax accounting income (income statement) | $ | 890 | $ | 987 | ||
Taxable income (tax return) | $ | 885 | $ | 1,010 | ||
Tax rate: 40% | ||||||
a. | Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2016 for $60 million. The cost is tax deductible in 2016. |
b. | Expenses include $3 million insurance premiums each year for life insurance on key executives. |
c. | Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2016 and 2017 were $32 million and $31 million, respectively. Subscriptions included in 2016 and 2017 financial reporting revenues were $19 million ($8 million collected in 2015 but not earned until 2016) and $27 million, respectively. Hint: View this as two temporary differencesone reversing in 2016; one originating in 2016. |
d. | 2016 expenses included a $14 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold in 2017. |
e. | During 2015, accounting income included an estimated loss of $5 million from having accrued a loss contingency. The loss was paid in 2016 at which time it is tax deductible. |
. | f. At January 1, 2016, Arndt had a deferred tax asset of $5 million and no deferred tax liability. 1)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 2016. |
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