Arnold Industries has pretax accounting income of $160 million for the year ended December 31, 2024. 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, 2024. An $136 million advance rent payment at the inception of the lease is tax-deductible in 2024 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.
Arnold Industries has pretax accounting income of $160 million for the year ended December 31, 2024. 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, 2024. An $136 million advance rent payment at the inception of the lease is tax-deductible in 2024 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.
Chapter14: Taxes On The Financial Statements
Section: Chapter Questions
Problem 20CE
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Question
Arnold Industries has pretax accounting income of $160 million for the year ended December 31, 2024. 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, 2024. An $136 million advance rent payment at the inception of the lease is tax-deductible in 2024 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.
Transcribed Image Text:Assume a new tax law is enacted in 2025 that causes the tax rate to change from 25% to 15% beginning in 2026. Complete the following table
given below to record Arnold's income taxes for 2025.
Note: Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). Amounts to be deducted should be
indicated with a minus sign.
Temporary Difference - Beginning of Year
Temporary Difference - End of Year
Change in Deferred Tax account
Income taxable in current year
($ in millions)
$
$
X
102.0 x
244.0 X
Tax Rate %
25% =
15% =
25% =
$
$
$
Tax $
Recorded as:
0.0 Deferred tax liability-beginning
15.3 Deferred tax liability-ending
Change in deferred tax liability
61.0 Income tax payable
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