Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.] Arndt, Inc., reported the following for 2016 and 2017 ($ in millions) 16 2017 Revenues Expenses $990 $1,042 30 30 Pretax accounting income (income $960 $ 1,012 $950 $1,030 statement) Taxable income (tax return) Tax rate: 40% a. Expenses each year include $30 million from a two-year casualty insurance policy b Expenses include $3 million insurance premiums each year for life insurance on key c. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected purchased in 2016 for $60 million. The cost is tax deductible in 2016 executives and taxable in 2016 and 2017 were $29 million and $48 million, respectively. Subscriptions included in 2016 and 2017 financia reporting revenues were $31 million ($13 million collected in 2015 but not earned until 2016) and $39 million, respectively Hint: View this as two temporary differences-one reversing in 2016: one originating in 2016 d. 2016 expenses included a $24 million unrealized loss from reducing investments e. During 2015, accounting income included an estimated loss of $5 million from having : At January 1, 2016, Arndt had a deferred tax asset of $8 million and no deferred tax (classified as trading securities) to fair value. The investments were sold in 2017 accrued a loss contingency. The loss was paid in 2016 at which time it is tax deductible lilability

Explanation / Answer

Life insurance premiums

Permanent

Casualty insurance expense

Temporary

Unrealized loss

Temporary

subscriptions received

Temporary

Loss contingency

Temporary

Permanent difference: transaction will be reported differently for tax reporting purposes and financial reporting purposes. Differences never be reversed and eliminated over a period of time.

Insurance premium is the example of permanent difference. this is fixed for all the years

Temporary difference: These can be reverse themselves in the following accounting periods.

Life insurance premiums

Permanent

Casualty insurance expense

Temporary

Unrealized loss

Temporary

subscriptions received

Temporary

Loss contingency

Temporary

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