Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate: is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 Pretax accounting income $ 370 $ 390 $ 405 2027 $ 440 Depreciation on the income statement Depreciation on the tax return 20 20 20 20 (80) (e) (e) (@)
Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate: is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 Pretax accounting income $ 370 $ 390 $ 405 2027 $ 440 Depreciation on the income statement Depreciation on the tax return 20 20 20 20 (80) (e) (e) (@)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 16-5 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference;
100% depreciation in the year of purchase; financial statement effects [LO16-2]
Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on
a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate
is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows:
2024
($ in millions)
2025
2026
2027
Pretax accounting income
$ 370
$ 390
Depreciation on the income statement
20
20
$ 405
20
Depreciation on the tax return
(80)
(0)
(0)
$ 440
20
(8)
$ 310
$ 410
$ 425
$ 460
Taxable income
Required:
For December 31 of each year, determine (a) the cumulative temporary book-tex difference for the depreciable asset and (b) the
balance to be reported in the deferred tax liability account.
Note: Leave no cell blank, enter "O" wherever applicable. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).
Cumulative Temporary Difference
Deferred Tax Liability
Beginning of 2024 End of 2024
End of 2025
End of 2026
End of 2027](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa22a9544-f928-4f00-a6c4-6180805aaae7%2Fdf67426e-9ffb-44a3-9af8-b1158b19d697%2Ft1tdmz3_processed.png&w=3840&q=75)
Transcribed Image Text:Exercise 16-5 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference;
100% depreciation in the year of purchase; financial statement effects [LO16-2]
Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on
a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate
is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows:
2024
($ in millions)
2025
2026
2027
Pretax accounting income
$ 370
$ 390
Depreciation on the income statement
20
20
$ 405
20
Depreciation on the tax return
(80)
(0)
(0)
$ 440
20
(8)
$ 310
$ 410
$ 425
$ 460
Taxable income
Required:
For December 31 of each year, determine (a) the cumulative temporary book-tex difference for the depreciable asset and (b) the
balance to be reported in the deferred tax liability account.
Note: Leave no cell blank, enter "O" wherever applicable. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).
Cumulative Temporary Difference
Deferred Tax Liability
Beginning of 2024 End of 2024
End of 2025
End of 2026
End of 2027
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