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Arndt, Inc., reported the following for 2018 and 2019 ($ in millions):

	2018				2019
Revenues	$	995			$	1,055
Expenses		798				838
Pretax accounting income (income statement)	$	197			$	217
Taxable income (tax return)	$	185			$	255
Tax rate: 40%

1. Expenses each year include $40 million from a two-year casualty insurance policy purchased in 2018 for $80 million. The cost is tax deductible in 2018.
2. Expenses include $3 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 2018 and 2019 were $38 million and $67 million, respectively. Subscriptions included in 2018 and 2019 financial reporting revenues were $35 million ($13 million collected in 2017 but not recognized as revenue until 2018) and $43 million, respectively. Hint: View this as two temporary differences—one reversing in 2018; one originating in 2018.
4. 2018 expenses included a $29 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold in 2019.
5. During 2017, accounting income included an estimated loss of $7 million from having accrued a loss contingency. The loss was paid in 2018 at which time it is tax deductible.
6. At January 1, 2018, Arndt had a deferred tax asset of $8 million and no deferred tax liability.

4. 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 2019.

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 (i.e., 10,000,000 should be entered as 10).)

5. Compute the deferred tax amounts that should be reported on the 2019 balance sheet. (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

($ in millions) Current Year 2019 Future Taxable Amounts [2020] Future Deductible Amounts [2020] Pretax accounting income 217 0 0 Permanent difference: Life insurance premiums 3 0 0 Temporary differences: Casualty insurance (reversing) 40 0 0 Subscriptions—2018 0 0 Subscriptions—2019 0 Unrealized loss (reversing) (29) 0 0 Taxable income (income tax return) 231 0 0 Enacted tax rate (%) 40% 40% 40% Tax payable currently Deferred tax liability 0 0 Deferred tax asset 0 ↓ ↓ Deferred tax liability Deferred tax assets Ending balances (balances currently needed) $0 Less: Beginning balances Changes needed to achieve desired balances $0 $0

Answer 1

Solution 4:

Tax schedule showing reconciliation between pre tax financial income, taxable income, deferred tax account (In millions) - Arndt Inc.
Particulars	Current Year - 2019	Future Taxable Amount	Future Deductible Amount
		FT - DTL	FD - DTA
Pretax accounting income	$217.00
Permanent Differences:
Life insurance premium	$3.00
Temporary Differences:
Casualty insurance expense	$40.00
Subscriptions - 2018	-$16.00
Subscriptions - 2019 ($67 - $43 + $16)	$40.00		$40.00
Unrealized loss	-$29.00
Taxable Income	$255.00
		$0.00	$40.00
Tax rate	40%	40%	40%
Tax payable currently	$102.00
Deferred tax liability		$0.00
Deferred tax assets			$16.00
		Deferred tax liability	Deferred tax Assets
Ending balances (balances currently needed)		$0.00	$16.00
Less: Beginning balances		$16.00	$18.00
Changes needed to achieve desired balances		-$16.00	-$2.00

Solution 5:

Deferred tax amounts ($ in millions)
Classification	Amount
Deferred tax liability	$0.00
Deferred tax assets	$16.00