Arnold Industries has pretax accounting income of $88 million for the year ended December 31, 2021. 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, 2021. An $64 million advance rent payment at the inception of the lease is tax-deductible in 2021 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.Required:1. Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2021.2. Prepare the appropriate journal entry to record Arnold’s income taxes for 2022. Pretax accounting income was $120 million for the year ended December 31, 2022.3. Assume a new tax law is enacted in 2022 that causes the tax rate to change from 25% to 15% beginning in 2023. Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2022. ### Transcription and Explanation---#### Instructions:Complete the following table given below to record Arnold’s income taxes for 2021. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)#### Table Overview:The table is designed to calculate and display Arnold's income tax details for 2021. It includes columns for financial amounts (in millions), tax rates, tax amounts, and recorded values.#### Table Breakdown:| Description | $ (in millions) | Tax Rate % | Tax $ | Recorded as: ||----------------------------------|-----------------|------------|-------|---------------|| **Pretax accounting income** | 88.0 | | | || **Rent costs reversing in:** | | | | || **2022** | | x | = | || **2023** | | x | = | || **2024** | | x | = | || **2025** | | x | = | || **Total deferred tax amount** | | | $ 0.0 | || **Income taxable in current year** | 88.0 | x | = | |---#### Explanation:- **Pretax Accounting Income**: The income before taxes are applied, listed as $88.0 million. - **Rent Costs Reversing**: These entries cover rent costs that will reverse in the years 2022 through 2025. Each year has spaces to calculate tax based on the respective tax rates.- **Total Deferred Tax Amount**: Sum of deferred tax from the reversing rent costs, currently shown as $0.0 million, indicating no deferred tax.- **Income Taxable in Current Year**: Same as the initial pretax accounting income, $88.0 million, with space to calculate the taxable amount based on the tax rate.This table is useful for calculating and recording taxation details accurately by year for financial and educational purposes. ### Tax Calculation Table for Arnold's Income Taxes - 2022#### Context:A new tax law enacted in 2022 changes the tax rate from 25% to 15% beginning in 2023. The table below is designed to help record Arnold's income taxes for 2022. Note: Enter answers in millions, rounded to one decimal place (e.g., 5,500,000 should be entered as 5.5). Amounts to be deducted should have a minus sign.#### Table Structure:1. **Columns:** - **($ in millions):** This column is for entering temporary differences or income amounts in millions. - **Tax Rate %:** A placeholder for the applicable tax rate. - **Tax $:** Shows the tax amount, calculated by multiplying the temporary difference or income by the tax rate. - **Recorded as:** Specifies how the calculated tax will be recorded in the financial statements.2. **Rows:** - **Temporary Difference - Beginning of Year:** - Tax $: $0.0 - **Temporary Difference - End of Year:** - Tax $: $0.0 - **Change in Deferred Tax account:** - Calculation occurs based on the deduction or increase in temporary differences due to tax rate change. - **Income taxable in current year:** - Tax $: $0.0This detailed table allows for a clear calculation of the necessary tax-related amounts under the new legislation.

Solution: Taxable income is the income on which income tax is to be paid and it is computed by…

Answered: Arnold Industries has pretax accounting…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Arnold Industries has pretax accounting income of $88 million for the year ended December 31, 2021. 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, 2021. An $64 million advance rent payment at the inception of the lease is tax-deductible in 2021 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.

Required:
1. Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2021.
2. Prepare the appropriate journal entry to record Arnold’s income taxes for 2022. Pretax accounting income was $120 million for the year ended December 31, 2022.
3. Assume a new tax law is enacted in 2022 that causes the tax rate to change from 25% to 15% beginning in 2023. Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2022.

### Transcription and Explanation

---

#### Instructions:
Complete the following table given below to record Arnold’s income taxes for 2021. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

#### Table Overview:
The table is designed to calculate and display Arnold's income tax details for 2021. It includes columns for financial amounts (in millions), tax rates, tax amounts, and recorded values.

#### Table Breakdown:

| Description | $ (in millions) | Tax Rate % | Tax $ | Recorded as: |
|----------------------------------|-----------------|------------|-------|---------------|
| **Pretax accounting income** | 88.0 | | | |
| **Rent costs reversing in:** | | | | |
| **2022** | | x | = | |
| **2023** | | x | = | |
| **2024** | | x | = | |
| **2025** | | x | = | |
| **Total deferred tax amount** | | | $ 0.0 | |
| **Income taxable in current year** | 88.0 | x | = | |

---

#### Explanation:

- **Pretax Accounting Income**: The income before taxes are applied, listed as $88.0 million.

- **Rent Costs Reversing**: These entries cover rent costs that will reverse in the years 2022 through 2025. Each year has spaces to calculate tax based on the respective tax rates.

- **Total Deferred Tax Amount**: Sum of deferred tax from the reversing rent costs, currently shown as $0.0 million, indicating no deferred tax.

- **Income Taxable in Current Year**: Same as the initial pretax accounting income, $88.0 million, with space to calculate the taxable amount based on the tax rate.

This table is useful for calculating and recording taxation details accurately by year for financial and educational purposes.

### Tax Calculation Table for Arnold's Income Taxes - 2022

#### Context:
A new tax law enacted in 2022 changes the tax rate from 25% to 15% beginning in 2023. The table below is designed to help record Arnold's income taxes for 2022. Note: Enter answers in millions, rounded to one decimal place (e.g., 5,500,000 should be entered as 5.5). Amounts to be deducted should have a minus sign.

#### Table Structure:

1. **Columns:**
- **($ in millions):** This column is for entering temporary differences or income amounts in millions.
- **Tax Rate %:** A placeholder for the applicable tax rate.
- **Tax $:** Shows the tax amount, calculated by multiplying the temporary difference or income by the tax rate.
- **Recorded as:** Specifies how the calculated tax will be recorded in the financial statements.

2. **Rows:**
- **Temporary Difference - Beginning of Year:**
- Tax $: $0.0
- **Temporary Difference - End of Year:**
- Tax $: $0.0
- **Change in Deferred Tax account:**
- Calculation occurs based on the deduction or increase in temporary differences due to tax rate change.
- **Income taxable in current year:**
- Tax $: $0.0

This detailed table allows for a clear calculation of the necessary tax-related amounts under the new legislation.

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