In: Accounting
Arnold Industries has pretax accounting income of $160 million
for the year ended December 31, 2021. The tax rate is 25%. The only
difference between accounting income and taxable income relates to
an operating lease in which Arnold is the lessee. The inception of
the lease was December 28, 2021. An $136 million advance rent
payment at the inception of the lease is tax-deductible in 2021
but, for financial reporting purposes, represents prepaid rent
expense to be recognized equally over the four-year lease
term.
Required:
1. Complete the following table given below and
prepare the appropriate journal entry to record Arnold’s income
taxes for 2021.
2. Prepare the appropriate journal entry to record
Arnold’s income taxes for 2022. Pretax accounting income was $210
million for the year ended December 31, 2022.
3. Assume a new tax law is enacted in 2022 that
causes the tax rate to change from 25% to 15% beginning in 2023.
Complete the following table given below and prepare the
appropriate journal entry to record Arnold’s income taxes for
2022.