1 answer

Required information [The following information applies to the questions displayed below.) Arndt, Inc. reported the following...

Question:

Required information [The following information applies to the questions displayed below.) Arndt, Inc. reported the following
Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. (Amounts to be deducte
Journal entry worksheet 1 Record 2021 income taxes. Note: Enter debits before credits. Debit Credit Transaction General Journ
3. Compute the deferred tax amounts that should be reported on the 2021 balance sheet. (Enter your answers in millions rounde
Required information [The following information applies to the questions displayed below.) Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): Revenues Expenses Pretax accounting income (income statement) Taxable income (tax return) Tax rate: 258 2021 $ 930 786 $ 144 $ 114 2022 $1,022 842 $ 180 $ 214 a. Expenses each year include $48 million from a two-year casualty insurance policy purchased in 2021 for $96 million. The cost is tax deductible in 2021. 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 2021 and 2022 were $49 million and $65 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $43 million ($28 million collected in 2020 but not recognized as revenue until 2021) and $49 million, respectively. Hint View this as two temporary differences-one reversing in 2021: one originating in 2021. d. 2021 expenses included a $32 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022. e. During 2020, accounting income included an estimated loss of $22 million from having accrued a loss contingency The loss was paid in 2021, at which time it is tax deductible, f. At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.
Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Future Current Future Taxable ($ in millions) Year 2021 Deductible Amounts (2022) Amounts [2022] Pretax accounting income $ 144.0 Permanent difference: Life insurance premiums 2.0 Temporary differences: (48.0) 48.0 Casualty insurance expense Subscriptions--2020 (28.0) Subscriptions--2021 Unrealized loss 32.0 Loss contingency Taxable income $ 102.0 $ 48.0 $ 0.0 Enacted tax rate (%) 25.0% 25.0% 25.0% Tax payable currently Deferred tax liability Deferred tax asset
Journal entry worksheet 1 Record 2021 income taxes. Note: Enter debits before credits. Debit Credit Transaction General Journal 1
3. Compute the deferred tax amounts that should be reported on the 2021 balance sheet. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Answer is complete but not entirely correct. Deferred tax amounts ($ in millions) Classification Amount Net noncurrent deferred tax asset 7.7

Answers

Solution 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 -$48.00 $48.00
Subscriptions - 2021 -$28.00
Subscriptions - 2022 $34.00 $34.00
Unrealized loss $32.00 $32.00
Loss contigency -$22.00
Taxable Income $114.00
$48.00 $66.00
Tax rate 25% 25% 25%
Tax payable currently $28.50
Deferred tax liability $12.00
Deferred tax assets $16.50
Deferred tax liability Deferred tax Assets
Ending balances (balances currently needed) $12.00 $16.50
Less: Beginning balances $0.00 $4.00
Changes needed to achieve desired balances $12.00 $12.50

Solution 2:

Journal Entries
Date Particulars Debit Credit
31-Dec-21 Income tax expense Dr $28.00
Deferred tax Assets Dr $12.50
           To Income tax payable $28.50
           To Deferred tax liability $12.00
(To record income tax expense and deferred taxes)

Solution 3:

Deferred tax amounts ($ in millions)
Classification Amount
Deferred tax liability $12.00
Deferred tax assets $16.50
Net Non current deferred tax assets $4.50
.

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