Question

Required information [The following information applies to the questions displayed below.) Arndt, Inc. reported the followingRequired: 1. Which of the five differences described in items a-e are temporary and which are permanent differences? a. Casua2. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. Using the schedule,Required 1 Required 2 Prepare the necessary journal entry to record income taxes for 2021. (If no entry is required for a tra

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Answer #1

Solution 1:

Casualty Insurance expense - Temporary difference

Life insurance premium - Permanent difference

Subscriptions - Temporary difference

Unrealized loss on trading securities - Temporary difference

Loss contingency - Temporary difference

Solution 2-1:

Tax schedule showing reconciliation between pre tax financial income, taxable income, deferred tax account (In millions) - Arndt Inc.
Particulars Current Year - 2021 Future Taxable Amount Future Deductible Amount
FT - DTL FD - DTA
Pretax accounting income $144.00
Permanent Differences:
Life insurance premium $2.00
Temporary Differences:
Casualty insurance expense -$72.00 $72.00
Subscriptions - 2021 -$52.00
Subscriptions - 2022 $58.00 $58.00
Unrealized loss $56.00 $56.00
Loss contigency -$46.00
Taxable Income $90.00
$72.00 $114.00
Tax rate 25% 25% 25%
Tax payable currently $22.50
Deferred tax liability $18.00
Deferred tax assets $28.50
Deferred tax liability Deferred tax Assets
Ending balances (balances currently needed) $18.00 $28.50
Less: Beginning balances $0.00 $4.00
Changes needed to achieve desired balances $18.00 $24.50

Solution 2-2:

Journal Entries
Date Particulars Debit Credit
31-Dec-21 Income tax expense Dr $16.00
Deferred tax Assets Dr $24.50
           To Income tax payable $22.50
           To Deferred tax liability $18.00
(To record income tax expense and deferred taxes)
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