Ayres Services acquired an asset for $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on astraight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows:($ in millions)2022$38016(0)$396Pretax accounting incomeDepreciation on the income statementDepreciation on the tax return2021$360162023$395162024$43016(0)(64)$312(0)Taxable income$411$446Required:For December 31 of each year, determine (a) the cumulative temporary book-tax difference for the depreciable asset and (b) thebalance to be reported in the deferred tax liability account. (Leave no cell blank, enter "O" wherever applicable. Enter your answersin millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)Beginning of 2021End of 2021End of 2022End of 2023End of 2024Cumulative Temporary DifferenceDeferred Tax Liability

Solution: - The following formulas used to calculate the cumulative temporary book tax difference…

Ayres Services acquired an asset for $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2022 $380 2021 Pretax accounting income Depreciation on the income statement Depreciation on the tax return 2023 $395 16 (0) 2024 $430 16 (0) $360 16 16 (64) (0) Taxable income $312 $396 $411 $446 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 "O" wherever applicable. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024 Cumulative Temporary Difference Deferred Tax Liability

Ayres Services acquired an asset for $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2022 $380 2021 Pretax accounting income Depreciation on the income statement Depreciation on the tax return 2023 $395 16 (0) 2024 $430 16 (0) $360 16 16 (64) (0) Taxable income $312 $396 $411 $446 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 "O" wherever applicable. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) 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

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

Ayres Services acquired an asset for $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on a
straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is
25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows:
($ in millions)
2022
$380
16
(0)
$396
Pretax accounting income
Depreciation on the income statement
Depreciation on the tax return
2021
$360
16
2023
$395
16
2024
$430
16
(0)
(64)
$312
(0)
Taxable income
$411
$446
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 "O" wherever applicable. Enter your answers
in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Beginning of 2021
End of 2021
End of 2022
End of 2023
End of 2024
Cumulative Temporary Difference
Deferred Tax Liability

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