Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2016. The tax rate is 40%. 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, 2016. An $8 million advance rent payment at the inception of the lease is tax-deductible in 2016 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term. Required: 1. Determine the amounts necessary to record Arnold’s income taxes for 2016 and prepare the appropriate journal entry. 2. Determine the amounts necessary to record Arnold’s income taxes for 2017 and prepare the appropriate journal entry. Pretax accounting income was $50 million for the year ended December 31, 2017. 3. Assume a new tax law is enacted in 2017 that causes the tax rate to change from 40% to 30% beginning in 2018. Determine the amounts necessary to record Arnold’s income taxes for 2017 and prepare the appropriate journal entry. 4. Why is Arnold’s 2017 income tax expense different when the tax rate change occurs from what it would be without the change?
Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2016. The tax rate is 40%. 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, 2016. An $8 million advance rent payment at the inception of the lease is tax-deductible in 2016 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term. Required: 1. Determine the amounts necessary to record Arnold’s income taxes for 2016 and prepare the appropriate
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 5 images
