Question

Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):

	2021				2022
Revenues	$	956			$	1,048
Expenses		812				868
Pretax accounting income (income statement)	$	144			$	180
Taxable income (tax return)	$	88			$	214
Tax rate: 25%

1. Expenses each year include $74 million from a two-year casualty insurance policy purchased in 2021 for $148 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 $75 million and $91 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $69 million ($54 million collected in 2020 but not recognized as revenue until 2021) and $75 million, respectively. Hint: View this as two temporary differences—one reversing in 2021; one originating in 2021.
4. 2021 expenses included a $58 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 $48 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
   1. Which of the five differences described in items a-e are temporary and which are permanent differences? a. Casualty insurance expense b. Life insurance premiums c. Subscriptions d. Unrealized loss on trading securities e Loss contingency
   

Answer 1

1 Which one of the five differences described in items a-e are temporary and permanent differences a b C d e Casualty insurance expense Life insurance premiums Subscriptions Unrealized loss on trading securities Loss contingency Permanent difference Temporary difference Temporary difference Temporary difference Future Taxable Amounts (2022) Future Deductible Amounts (2022) Current Year 2021 144 Pretax accounting income Permanent difference: Life insurance premiums Temporary differences: Casualty insurance expense Subscriptions-2021 Subscriptions-2022 (75+54-69) Unrealized loss Loss contingency (reversing) Taxable income -60 74 -60 25% 25% Enacted Tax Rate Tax Payable Currently Deferred Tax Liability 25% 22 18.5 -15

Deferred Tax asset Deferred Tax Liability Deferred Tax asset Ending balances Less:beginning balances Changes needed to achieve desired balances 18.5 o 1 Prepare the necessary journal entry to record income taxes for 2021 Debit Credit General Journal Income Tax Expense Deferred Tax asset Deferred Tax Liability Income Tax Payable 29.5 11.0 18.5 22.0 95 4) Compute the deferred tax amounts Deferred Tax amount that should be reported in the 2021 balance sheet is 11 Note; As per HOMEWORKLIB POLICY I have answered first 4 parts