Question

Arnold Industries has pretax accounting income of $33 million for the year ended December 31, 2011. The tax rate is 40%. 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, 2011. An $8 million advance rent payment at the inception of the lease is tax-deductible in 2011 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term.

Required:
1. Determine the amounts necessary to record Arnold's income taxes for 2011 and prepare the appropriate journal entry.
2. Determine the amounts necessary to record Arnold's income taxes for 2012 and prepare the appropriate journal entry. Pretax accounting income was $50 million for the year ended December 31, 2012.
3. Assume a new tax law is enacted in 2012 that causes the tax rate to change from 40% to 30% beginning in 2013. Determine the amounts necessary to record Arnold's income taxes for 2012 and prepare the appropriate journal entry.
4. Why is Arnold's 2012 income tax expense different when the tax rate change occurs from what it would be without the change?



$1.99
Sales2
Views404
Comments0
  • CreatedJuly 05, 2013
  • Files Included
Post your question
5000