Arnold Industries has pretax accounting income of $88 million for the year ended December 31,2024. The tax rate is 25%. The only difference between accounting income and taxable incomerelates to an operating lease in which Arnold is the lessee. The inception of the lease was December28, 2024. An $64 million advance rent payment at the inception of the lease is tax-deductible in2024 but, for financial reporting purposes, represents prepaid rent expense to be recognizedequally over the four-year lease term.Required:1. Complete the following table given below and prepare the appropriate journal entry to recordArnold's income taxes for 2024.2. Prepare the appropriate journal entry to record Arnold's income taxes for 2025. Pretaxaccounting income was $120 million for the year ended December 31, 2025.3. 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 and prepare the appropriatejournal entry to record Arnold's income taxes for 2025.

Lets understand the basics.Taxable income is the income on which income tax is to be paid and it is…

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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Sherrod, Inc., reported pretax accounting income of $70 million for 2021. The following information relates to differences between pretax accounting income and taxable income: Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $4 million. The installment receivable account at year-end 2021 had a balance of $6 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023. Sherrod was assessed a penalty of $1 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $60 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but…
At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $125 million attributable to a temporary book-tax difference of $500 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $384 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2021 is $900 million and the tax rate is 25%. Required:1. Prepare the journal entry(s) to record Payne’s income taxes for 2021, assuming it is more likely than not that the deferred tax asset will be realized.2. Prepare the journal entry(s) to record Payne’s income taxes for 2021, assuming it is more likely than not that only one-fourth of the deferred tax asset ultimately will be realized.
Oriole Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2024. In 2024, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 20%. Income before taxes under both the methods for the past three years appears below. Completed contract Percentage-of-completion 2022 $366000 O $188000 O $66000 O $300000 2023 $405000 $273000 705000 339000 2024 $141000 225000 What amount will be debited to Construction-in-Process to record the change at the beginning of 2024?
On January 1, 2020, Lexi Company received P250,000 representing rentals from a five-year operating lease commencing on the same date. Said amount is taxable on the year received. The pretax accounting net income for 2020 was P2,215,000 and the tax payments made in 2020 totaled P440,000. The current tax expense for 2021 is P800,000. Reflect the effects of the CREATE Law. 1. How much is the taxable income for 2020? 2. How much is the deferred tax asset as of December 31, 2020? 3. How much is the income tax expense for 2020?
On January 1, 2020, Lexi Company received P250,000 representing rentals from a five-year operating lease commencing on the same date. Said amount is taxable on the year received. The pretax accounting net income for 2020 was P2,215,000 and the tax payments made in 2020 totaled P440,000. The current tax expense for 2021 is P800,000. Reflect the effects of the CREATE Law. How much is the income tax expense for 2021? How much is the deferred tax asset as of December 31, 2022?
How much should be shown in FIVE's 2021 income statement as gross rental income? * On December 31, 2021, FIVE Corporation signed an operating lease for a warehouse with Aye Company for ten years at P30,000 per year. Upon execution of the lease, Aye paid FIVE P60,000, covering rent for the first two years. FIVE closed its books on December 31 and correctly reported P60,000 as gross rental income in its 2021 income tax return.
On December 31, 2022, Dodd, Inc. appropriately changed the company's method of accounting for long-term construction contracts from the percentage-of-completion method to the cost recovery method for financial statement and income tax purposes. The change will result in a €2,300,000 decrease in the beginning Construction in Process at January 1, 2022. Assume a 30% income tax rate. The cumulative effect of this accounting change on the Deferred Tax Liability account is Group of answer choices 1) a decrease of €690,000. 2) an increase of €690,000. 3) a decrease of €1,610,000. 4)an increase of €2,300,000.
At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $90 million attributable to a temporary book-tax difference of $360 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $272 million. Payne has no other temporary differences. Taxable income for 2021 is $648 million and the tax rate is 25%. Payne has a valuation allowance of $36 million for the deferred tax asset at the beginning of 2021. Required: Prepare the journal entry(s) to record Payne’s income taxes for 2021, assuming it is more likely than not that the deferred tax asset will be realized in full. Prepare the journal entry(s) to record Payne’s income taxes for 2021, assuming it is more likely than not that only one-fourth of the deferred tax asset ultimately will be realized.
XYZ Company manufactures equipment that are sold through installment. XYZ recognizes revenue on the year of sale for financial reporting and when installment payments are received for income tax purposes. In 2020, the company earned a gross profit of P6,000,000 for accounting and P1,500,000 for income tax purposes. In relation to its sales, XYZ also provides warranties for its equipment. Warranty costs are accrued as expense for financial reporting and recognized as deductible expense in the income tax return when paid. Accrued warranty expense for 2020 is P2,500,000, but only P500,000 of warranty costs are actually paid during the year.In addition, XYZ also earned P500,000 of interest, net of final withholding taxes, from its bank deposits. Interest income subject to final withholding taxes is non-taxable income for income tax purposes. The entity also paid P100,000 insurance premium on the life of its president in relation to an insurance policy where XYZ Company is the beneficiary.…
J-Matt, Inc., had pretax accounting income of $331,000 and taxable income of $376,000 in 2021. The only difference between accounting and taxable income is estimated product warranty costs of $45,000 for sales in 2021. Warranty payments are expected to be in equal amounts over the next three years (2022–2024) and will be tax deductible at that time. Recent tax legislation will change the tax rate from the current 25% to 20% in 2023. Determine the amounts necessary to record J-Matt’s income taxes for 2021 and prepare the appropriate journal entry.
At the end of 2019, its first year of operations, Beattie Company reported taxable income of $39,000 and pretax financial income of $35,000. The difference is due to the way the company handles its warranty costs. For tax purposes, Beattie deducts the warranty costs as they are paid. For financial reporting purposes, Beattie provides for a year-end estimated warranty liability based on future expected costs. Beattie is subject to a 30% tax rate for 2019, and no change in the tax rate has been enacted for future years. Based on verifiable evidence, the company decides it should establish a valuation allowance of 60% of its ending deferred tax asset. Required: 1. Prepare Beattie’s income tax journal entry at the end of 2019. 2. Prepare the lower portion of Beattie’s 2019 income statement.
In 2021, IRS Company reported pretax financial income of $260,000. IRS Company paid rent in advance of $30,000 to Housing Corporation. For book purposes, there is a deferral of $30,000 for the rent paid in advance. For book purposes, the rent expense will be recognized in 2022. The company's tax rate is 35%. 2021 is the company's first year of operations. 1. Compute IRS Company’s taxable income for 2021 2. Prepare IRS Company's journal entry for 2021.

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