In: Accounting
Arndt, Inc., reported
the following for 2018 and 2019 ($ in millions):
PLEASE FILL IN THE BLANKS
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% | |||||||
2. 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 2018.
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).)
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Solution 2:
Tax schedule showing reconciliation between pre tax financial income, taxable income, deferred tax account (In millions) - Arndt Inc. | |||
Particulars | Current Year - 2018 | Future Taxable Amount | Future Deductible Amount |
FT - DTL | FD - DTA | ||
Pretax accounting income | $197.00 | ||
Permanent Differences: | |||
Life insurance premium | $3.00 | ||
Temporary Differences: | |||
Casualty insurance expense | -$40.00 | $40.00 | |
Subscriptions - 2017 | -$13.00 | ||
Subscriptions - 2018 | $16.00 | $16.00 | |
Unrealized loss | $29.00 | $29.00 | |
Loss contigency | -$7.00 | ||
Taxable Income | $185.00 | ||
$40.00 | $45.00 | ||
Tax rate | 40% | 40% | 40% |
Tax payable currently | $74.00 | ||
Deferred tax liability | $16.00 | ||
Deferred tax assets | $18.00 | ||
Deferred tax liability | Deferred tax Assets | ||
Ending balances (balances currently needed) | $16.00 | $18.00 | |
Less: Beginning balances | $0.00 | $8.00 | |
Changes needed to achieve desired balances | $16.00 | $10.00 |
Journal Entries | |||
Date | Particulars | Debit | Credit |
31-Dec-18 | Income tax expense Dr | $80.00 | |
Deferred tax Assets Dr | $10.00 | ||
To Income tax payable | $74.00 | ||
To Deferred tax liability | $16.00 | ||
(To record income tax expense and deferred taxes) |