accounting income (income sta eincome (tax return) : 25% s each year include $30 million fro e policy purchased in 2021 for $60 e in 2021.
accounting income (income sta eincome (tax return) : 25% s each year include $30 million fro e policy purchased in 2021 for $60 e in 2021.
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 35P
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Transcribed Image Text:Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):
2021
2022
Revenues
$ 888
$ 980
Expenses
Pretax accounting income (income statement)
Taxable income (tax return)
760
800
$ 128
$ 116
$ 180
$ 200
Tax rate: 25%
a. Expenses each year include $30 million from a two-year casualty
insurance policy purchased in 2021 for $60 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 $33 million and
$35 million, respectively. Subscriptions included in 2021 and 2022
financial reporting revenues were $25 million ($10 million collected
in 2020 but not recognized as revenue until 2021) and $33 million,
respectively. Hint View this as two temporary differences-one
reversing in 2021; one originating in 2021.
d. 2021 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 2022.
e. During 2020, accounting income included an estimated loss of $6
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.
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 2022.
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