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In: Accounting

Logan, Inc. disclosed the subsequent for 2024 and 2025 ($ in millions): 2024 2025 ________________________________ Revenues...

Logan, Inc. disclosed the subsequent for 2024 and 2025 ($ in millions):

2024 2025

________________________________

Revenues $888 $980

Expenses 760 800

_________

Pretax accounting income (income statement) 128 180

Taxable income (tax return) 116 200

Tax rate: 25%

  1. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2024 for $60 million. The cost is tax deductible in 2024.

  2. Expenses include $2 million insurance premiums each year for life insurance on primary officers.

  3. Logan sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2024 and 2025 were $33 million and $35 million, respectively. Subscriptions included in 2024 and 2025 financial reporting revenues were $25 million ($19 million collected in 2023 but not recognized as revenue until 2024) and $33 million, respectively. (Hint: View this as two temporary differences--one reversing in 2024; one originating in 2024.

  4. 2024 expenses included a $14 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2025.

  5. In 2023, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss was paid in 2024, at which time is tax deductible.

  6. On January 1, 2024, Logan had a deferred tax asset of $4 million and no deferred tax liability.

answer the following:

1.which of the five differences in items a-e are permanent differences and which are temporary? Why?

2. Prepare a schedule that (1) reconciles the difference between pretax accounting income and taxable income and (2) determines the amounts necessary to record income taxes for 2024. Prepare the applicable journal entry.

3. Show how long any 2024 deferred tax amounts should be classified and reported on the 2024 balance sheet

4. Prepare a schedule that (1) reconciles the difference between pretax accounting income and taxable income and (2) determines the amounts necessary to record income taxes for 2025. Prepare the applicable journal entry.

5. Explain how any 2025 deferred tax amounts should be classified and reported on the 2025 balance sheet

Solutions

Expert Solution

ekkarill92 answered 1 year ago
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