Ayres Services acquired an asset for $144 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset/s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows:                                                                                                 _             ($ in millions) ____________                                                                                                 2021        2022         2023      2024 Pretax accounting income                                          $370        $390         $405      $440 Depreciation on the income statement                       36            36             36           36 Depreciation on the tax return                                    (57)         (49)           (23)        (15) Taxable income                                                                  $349         $377         $418       $461   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 balance, 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).                                                                     Beginning of 2021   End of 2021   End of 2022   End of 2023     End of 2024 Cumulative Temporary Difference            ___________   __________   __________   _________     ___________ Deferred Tax Liability                           _____________   __________   __________   _________    ____________

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Ayres Services acquired an asset for $144 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                                          $370        $390         $405      $440

Depreciation on the income statement                       36            36             36           36

Depreciation on the tax return                                    (57)         (49)           (23)        (15)

Taxable income                                                                  $349         $377         $418       $461

 

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 balance, 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).

 

                                                                  Beginning of 2021   End of 2021   End of 2022   End of 2023     End of 2024

Cumulative Temporary Difference            ___________   __________   __________   _________     ___________

Deferred Tax Liability                           _____________   __________   __________   _________    ____________

Expert Solution
Step 1

The temporary difference is the difference between the carrying value of the liability or assets in the tax base and the statement of financial position. The temporary difference results in either deferred tax assets or liability.

trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 4 images

Blurred answer
Knowledge Booster
Accounting for Income Taxes
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education