Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

[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.

image text in transcribed

Chap. 16 Homework Future Deductible Amounts [2017] Current Future Taxable Year 2016 Amounts [2017 ($ in millions) Pretax accounting income Permanent difference Life insurance premiums Temporary Casualty insurance expense Subscriptions-2015 Subscriptions-2016 Unrealized loss Loss contingency Taxable income 0 Enacted tax rate (%) Tax payable currently Deferred tax liability Deferred tax asset Deferred tax liability Deferred tax asset Ending balances (balances currently needed) Less: Beginning balances Changes needed to achieve desired balances View transaction list Journal entry worksheet Record 2016 income taxes. Note: Enter debits before credits. Event General Journal DebitCredit Record entry Clear entry View general journal

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting For Decision Makers

Authors: Dr Peter Atrill, Eddie Mclaney, Sin Autor

5th Edition

1405888210, 9781405888219

More Books

Students also viewed these Accounting questions

Question

What is Larmors formula? Explain with a suitable example.

Answered: 1 week ago