The following information applies to the questions displayed below.] Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 $1,024 844 Revenues $ 932 788 Expenses Pretax accounting income (income statement) Taxable income (tax return) Tax rate: 25% $ 144 $ 112 $ 180 $ 214 a. Expenses each year include $50 million from a two-year casualty insurance policy purchased in 2021 for $100 million. The cost is tax deductible in 2021. b. Expenses include $2 million insurance premiums each year for life insurance on key executives. C. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $51 million and $67 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $45 million ($30 million collected in 2020 but not recognized as revenue until 2021) and $51 million, respectively. Hint View this as two temporary differences-one reversing in 2021; one originating in 2021. d. 2021 expenses included a $34 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022. e. During 2020, accounting income included an estimated loss of $24 million from having accrued a loss contingency. The loss was paid in 2021, at which time it is tax deductible. f. At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.
The following information applies to the questions displayed below.] Arndt, Inc. reported the following for 2021 and 2022 ($ in millions): 2021 2022 $1,024 844 Revenues $ 932 788 Expenses Pretax accounting income (income statement) Taxable income (tax return) Tax rate: 25% $ 144 $ 112 $ 180 $ 214 a. Expenses each year include $50 million from a two-year casualty insurance policy purchased in 2021 for $100 million. The cost is tax deductible in 2021. b. Expenses include $2 million insurance premiums each year for life insurance on key executives. C. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were $51 million and $67 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were $45 million ($30 million collected in 2020 but not recognized as revenue until 2021) and $51 million, respectively. Hint View this as two temporary differences-one reversing in 2021; one originating in 2021. d. 2021 expenses included a $34 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2022. e. During 2020, accounting income included an estimated loss of $24 million from having accrued a loss contingency. The loss was paid in 2021, at which time it is tax deductible. f. At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Required Information
The following Information applies to the questions displayed below.)
Arndt, Inc. reported the following for 2021 and 2022 ($ in millions):
2021
2022
$1,024
844
Revenues
Еxpenses
Pretax accounting income (income statement)
Taxable income (tax return)
Tax rate: 25%
$ 932
788
$ 144
$ 112
S 180
24
214
a. Expenses each year include $50 million from a two-year casualty insurance policy purchased in 2021 for $100 million.
The cost is tax deductible in 2021.
b. Expenses include $2 million insurance premiums each year for life insurance on key executives.
C. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2021 and 2022 were
$51 million and $67 million, respectively. Subscriptions included in 2021 and 2022 financial reporting revenues were
$45 million ($30 million collected in 2020 but not recognized as revenue until 2021) and $51 million, respectively. Hint
View this as two temporary differences-one reversing in 2021; one originating in 2021.
d. 2021 expenses included a $34 million unrealized loss from reducing investments (classified as trading securities) to fair
value. The investments were sold and the loss realized in 2022.
e. During 2020, accounting income included an estimated loss of $24 million from having accrued a loss contingency.
The loss was paid in 2021, at which time it is tax deductible.
f. At January 1, 2021, Arndt had a deferred tax asset of $4 million and no deferred tax liability.
Required:
1. Which of the five differences described in items a-e are temporary and which are permanent differences?
a. Casualty insurance expense
Life insurance premiums
c. Subscriptions
d. Unrealized loss on trading securities
e.
Loss contingency
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