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Problem 16-8 (Algo) Multiple differences; taxable income given; two years; change in tax rate; financial statement effects [LO16-1, 16-2, 16-3, 16-5, 16-6, 16-8]

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

	2024	2025
Revenues	$ 954	$ 1,046
Expenses	810	866
Pretax accounting income (income statement)	$ 144	$ 180
Taxable income (tax return)	$ 90	$ 214
Tax rate: 25%

Expenses each year include $72 million from a two-year casualty insurance policy purchased in 2024 for $144 million. The cost is tax deductible in 2024.

Expenses include $2 million insurance premiums each year for life insurance on key executives.

Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2024 and 2025 were $73 million and $89 million, respectively. Subscriptions included in 2024 and 2025 financial reporting revenues were $67 million ($50 million collected in 2023 but not recognized as revenue until 2024) and $73 million, respectively. Hint: View this as two temporary differencesone reversing in 2024; one originating in 2024.

2024 expenses included a $56 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold and the loss realized in 2025.

During 2023, accounting income included an estimated loss of $46 million from having accrued a loss contingency. The loss was paid in 2024, at which time it is tax deductible.

At January 1, 2024, Arndt had a deferred tax asset of $24 million and no deferred tax liability.

Problem 16-8 Part 4

4. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. Using the schedule, prepare the necessary journal entry to record income taxes for 2025.