[The following information applies to the questions displayed below.]   Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):     2021   2022 Revenues $ 936     $ 1,028   Expenses   792       848   Pretax accounting income (income statement) $ 144     $ 180   Taxable income (tax return) $ 108     $ 214   Tax rate: 25%                   Expenses each year include $54 million from a two-year casualty insurance policy purchased in 2021 for $108 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 $55 million and $71 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $49 million ($34 million collected in 2020 but not recognized as revenue until 2021) and $55 million, respectively. Hint: View this as two temporary differences—one reversing in 2021; one originating in 2021. 2021 expenses included a $38 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 $28 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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I need help with required 2 please.

 

Problem 16-8 (Algo) Multiple differences; taxable income given; two years; balance sheet classification; change in tax rate [LO16-1, 16-2, 16-3, 16-5, 16-6, 16-8]

 

[The following information applies to the questions displayed below.]
 
Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):
 

  2021   2022
Revenues $ 936     $ 1,028  
Expenses   792       848  
Pretax accounting income (income statement) $ 144     $ 180  
Taxable income (tax return) $ 108     $ 214  
Tax rate: 25%              
 

 

  1. Expenses each year include $54 million from a two-year casualty insurance policy purchased in 2021 for $108 million. The cost is tax deductible in 2021.
  2. Expenses include $2 million insurance premiums each year for life insurance on key executives.
  3. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $55 million and $71 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $49 million ($34 million collected in 2020 but not recognized as revenue until 2021) and $55 million, respectively. Hint: View this as two temporary differences—one reversing in 2021; one originating in 2021.
  4. 2021 expenses included a $38 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022.
  5. During 2020, accounting income included an estimated loss of $28 million from having accrued a loss contingency. The loss was paid in 2021, at which time it is tax deductible.
  6. 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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