Question

Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):

	2021				2022
Revenues	$	930			$	1,022
Expenses		786				842
Pretax accounting income (income statement)	$	144			$	180
Taxable income (tax return)	$	114			$	214
Tax rate: 25%

1. Expenses each year include $48 million from a two-year casualty insurance policy purchased in 2021 for $96 million. The cost is tax deductible in 2021.
2. Expenses include $2 million insurance premiums each year for life insurance on key executives.
3. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $49 million and $65 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $43 million ($28 million collected in 2020 but not recognized as revenue until 2021) and $49 million, respectively. Hint: View this as two temporary differences—one reversing in 2021; one originating in 2021.
4. 2021 expenses included a $32 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022.
5. During 2020, accounting income included an estimated loss of $22 million from having accrued a loss contingency. The loss was paid in 2021, at which time it is tax deductible.
6. At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.

6. Suppose that during 2022, tax legislation was passed that will lower Arndt’s effective tax rate to 15% beginning in 2023. 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.

Answer 1

Amounts are in $ and millions

Answer is attached as a picture

Statement reconoling pretor acounting income and taxable income 2022 (Andio million F.I. AIDIL F.D.ADTA 180 Particulars Pre tox alcooting income Permonest diff Life insurance premium 2 32 16 Saturday 8 " Temporary dift Casualty insurance 48 subscription 21 (49+28-43) -34 Subscription war (65+34 49 450 so Unrealized loss laurable Income 214 DTA/DIL difference so Tere rate 15% D. I A. ama 75 of all the tempercoy differences, only one is effecting S and the remaining three are C Scanned with an sepanelure to presious yeer differenees. 0 257 the future years

16.5 Deferred tox opsel on date appening - 27 x (34432-4890 WeSmilion Deferred for assel on opening date - 25%. * (344 325 Deferred fox liability on 28 % X (48) 12 (we have taken 25% because the rate change is that time of creation opening date unknown But we need the current year closing balonces at Di L as "o" and Doi. A as So, we should severse DTL of "12" and reverse DTA of 9 18 8 Monday Income tox expense soos Deferred box liability 12 Deferred to asset Income torx payable CScanned with CamScanner 9 53.5

You can find the journal entry at the end of the last picture