Ayres Services acquired an asset for $128 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2021 2022 2023 2024 Pretax accounting income $ 360 $ 380 $ 395 $ 430 Depreciation on the income statement 32 32 32 32 Depreciation on the tax return (55 ) (39 ) (21 ) (13 ) Taxable income $ 337 $ 373 $ 406 $ 449 Required: For December 31 of each year, determine (a) the cumulative temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account. (Leave no cell blank, enter "0" wherever applicable. Enter your answers in millions rounded to 2 decimal place (i.e., 5,500,000 should be entered as 5.50).)
Ayres Services acquired an asset for $128 million in 2021. The asset is
| ($ in millions) | ||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | |||||||||||||
| Pretax accounting income | $ | 360 | $ | 380 | $ | 395 | $ | 430 | ||||||||
| Depreciation on the income statement | 32 | 32 | 32 | 32 | ||||||||||||
| Depreciation on the tax return | (55 | ) | (39 | ) | (21 | ) | (13 | ) | ||||||||
| Taxable income | $ | 337 | $ | 373 | $ | 406 | $ | 449 | ||||||||
Required:
For December 31 of each year, determine (a) the cumulative temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the
Deferred tax liability or Deferred tax assets are created due to temporary differences arrived between pretax income and taxable income. When there are taxable temporary difference, it give rise to deferred tax liability. When there is deductible temporary differences, it give rise to deferred tax assets.
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