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[The followinginformation applies to the questions displayed below.]
Arndt, Inc., reported the following for 2018 and 2019 ($ inmillions):
| 2018 | | 2019 |
| Revenues | $ | 995 | | | $ | 1,055 | |
| Expenses | | 798 | | | | 838 | |
| Pretaxaccounting income (income statement) | $ | 197 | | | $ | 217 | |
| Taxable income(tax return) | $ | 185 | | | $ | 255 | |
| Tax rate:40% | | | | | | | |
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- Expenses each year include $40 million from a two-year casualtyinsurance policy purchased in 2018 for $80 million. The cost is taxdeductible in 2018.
- Expenses include $3 million insurance premiums each year forlife insurance on key executives.
- Arndt sells one-year subscriptions to a weekly journal.Subscription sales collected and taxable in 2018 and 2019 were $38million and $67 million, respectively. Subscriptions included in2018 and 2019 financial reporting revenues were $35 million ($13million collected in 2017 but not recognized as revenue until 2018)and $43 million, respectively. Hint: View this as two temporarydifferences—one reversing in 2018; one originating in 2018.
- 2018 expenses included a $29 million unrealized loss fromreducing investments (classified as trading securities) to fairvalue. The investments were sold in 2019.
- During 2017, accounting income included an estimated loss of $7million from having accrued a loss contingency. The loss was paidin 2018 at which time it is tax deductible.
- At January 1, 2018, Arndt had a deferred tax asset of $8million and no deferred tax liability.
4. Prepare a schedule that reconciles thedifference between pretax accounting income and taxable income.Using the schedule, prepare the necessary journal entry to recordincome taxes for 2019.
Prepare a schedulethat reconciles the difference between pretax accounting income andtaxable income. (Amounts to be deducted should be indicated with aminus sign. Enter your answers in millions (i.e., 10,000,000 shouldbe entered as 10).)
5.Compute the deferred tax amounts that should be reported on the2019 balance sheet. (Enter youranswers in millions (i.e., 10,000,000 should be entered as10).)
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| | ($ inmillions) | CurrentYear 2019 | FutureTaxable Amounts [2020] | FutureDeductible Amounts [2020] | | Pretax accounting income | 217 | 0 | 0 | | Permanent difference: | | | | | Life insurance premiums | 3 | 0 | 0 | | Temporary differences: | | | | | Casualty insurance (reversing) | 40 | 0 | 0 | | Subscriptions—2018 | | 0 | 0 | | Subscriptions—2019 | | 0 | | | Unrealized loss (reversing) | (29) | 0 | 0 | | Taxable income (income tax return) | 231 | | | | | 0 | 0 | | Enacted tax rate (%) | 40% | 40% | 40% | | Tax payable currently | | | | | Deferred tax liability | | 0 | 0 | | Deferred tax asset | | 0 | | | | ? | ? | | | Deferred tax liability | Deferred tax assets | | Ending balances (balances currently needed) | | $0 | | | Less: Beginning balances | | | | | Changes needed to achieve desiredbalances | | $0 | $0 |
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