Question

Required information [The following information applies to the questions displayed below.] Arndt, Inc., reported the following for 2018 and 2019 ($ in millions): 2018 2019 $ 983 $ 888 Revenues Expenses Pretax accounting income (income statement) Taxable income (tax return) 760 800 $ 128 $ 120 $ 183 $ 200 Tax rate: 40% a. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2018 for $60 million. The cost is tax deductible in 2018. b. Expenses include $2 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 2018 and 2019 were $33 million and $35 million, respectively. Subscriptions included in 2018 and 2019 financial reporting revenues were $25 million ($10 million collected in 2017 but not recognized as revenue until 2018) and $33 million, respectively. Hint: View this as two temporary differences-one reversing in 2018; one originating in 2018. d. 2018 expenses included a $17 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold in 2019. e. During 2017, accounting income included an estimated loss of $5 million from having accrued a loss contingency. The loss was paid in 2018 at which time it is tax deductible. f. At January 1, 2018, Arndt had a deferred tax asset of $6 million and no deferred tax liability.

Answer 1

Future Taxable Amounts (2019) Future Deductible Amounts (2019) Current Year 2018 128] Pretax accounting income Permanent difference: Life insurance premiums Temporary differences: Casualty insurance expense Subscriptions-2018 Subscriptions-2019 (33+10-25) Unrealized loss Loss contingency (reversing) Taxable income -18 -17 120 -35 40% 40% 40% 48 Enacted Tax Rate Tax Payable Currently Deferred Tax Liability Deferred Tax asset 12 -14 Deferred Tax Liability Deferred Tax asset 12 14 Endingbalances Less:beginning balances Changes needed to achieve desired balances .

Debit Credit General Journal Income Tax Expense Deferred Tax asset Deferred Tax Liability Income Tax Payable 8 48