Arnold Industries has pretax accounting income of $62 million for the year ended December 31, 2018. 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, 2018. An $12 million advance rent payment at the inception of the lease is tax-deductible in 2018 but, for financial reporting purposes, represents prepaid rent expense to be recognized equally over the four-year lease term. Required:1. Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2018. ($ in millions) Tax Rate % Tax $Recorded as:Pretax accounting income$40.0 Rent costs reversing in: 2019 x = 2020 x = 2021 x = 2022 x = Total deferred tax amount Income taxable in current year2. Prepare the appropriate journal entry to record Arnold’s income taxes for 2019. Pretax accounting income was $49 million for the year ended December 31, 2019.3. Assume a new tax law is enacted in 2019 that causes the tax rate to change from 40% to 30% beginning in 2020. Complete the following table given below and prepare the appropriate journal entry to record Arnold’s income taxes for 2019.

Required 1

                                              ($'millions)  Tax Rate(%) Tax($)  Recorded as :

Pretax Accounting Income     $62

Rent costs reversing in:      

2019                                          $3           *     40%=       $1.2  

2020                                         $3           *      40%=       $1.2  

2021                                          $3           *      40%=       $1.2  

2022                                         $3           *       40%=      $1.2  

Tax Deferred Tax Amount                                              $4.8 (Deferred tax liability)

Income Taxable in current year $ 50     *        40%=      $20 (Income tax payable) ($62 -($3 *4 Years))

Year       General Journal                             DebitCredit

2018      Income Tax Expense (20+4.8)     $24.8  

                   Deferred Tax Liability                                 $4.8

                   Income tax payable                                    $20

              (To record Arnold income taxes for 2018)

Required 2  

Year        General Journal                              Debit        Credit

2019        Income Tax Expense ($49*40%)   $19.6

                       Deferred tax liability ($3*40%)                 $1.2  

                        Income tax payable (19.6+1.2)                 $20.8

                (To record Arnold income taxes for 2019)

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