Arndt, Inc., reported the following for 2024 and 2025 ($ in millions):

a. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2024 for $60 million. The cost is tax deductible in 2024.
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 2024 and 2025 were $33 million and $35 million, respectively. Subscriptions included in 2024 and 2025 financial reporting revenues were $25 million ($10 million collected in 2023 but not recognized as revenue until 2024) and $33 million, respectively. (Hint: View this as two temporary differences—one reversing in 2024; one originating in 2024).
d. 2024 expenses included a $14 million unrealized loss from reducing investments (classified as trading securities)
to fair value. The investments were sold and the loss realized in 2025.
e. During 2023, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss was paid in 2024, at which time it is tax deductible.
f. At January 1, 2024, 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? Why?
2. Prepare a schedule that (a) reconciles the difference between pretax accounting income and taxable income and (b) determines the amounts necessary to record income taxes for 2024. Prepare the appropriate journal entry.
3. Show how any 2024 deferred tax amounts should be classified and reported on the 2024 balance sheet.
4. Prepare a schedule that (a) reconciles the difference between pretax accounting income and taxable income and (b) determines the amounts necessary to record income taxes for 2025. Prepare the appropriate journal entry.
5. Indicate how any 2025 deferred tax amounts should be classified and reported on the 2025 balance sheet.
6. Suppose that during 2025, tax legislation was passed that will lower Arndt’s effective tax rate to 15% beginning in 2026. Repeat requirement 4.

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Revenues Expenses Pretax accounting income (income statement) Taxable income (tax return) Tax rate: 25% 2024 $888 760 $128 $116 2025 $980 800 $180 $200