Exercise 16-4 (Algo) Taxable Income given; calculate deferred tax liability from book-tax difference; financial statement effects [LO16-2] Ayres Services acquired an asset for $120 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting Income, depreciation, and taxable Income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income Depreciation on the income statement $ 355 $375 $390 $ 425 30 30 30 Depreciation on the tax return. (54) Taxable income Required: 30 (34) (20) (12) $ 331 $ 371 $ 400 $ 443 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. Note: Leave no cell blank, enter "O" wherever applicable. Enter your answers in millions rounded to 2 decimal places (l.e., 5,500,000 should be entered as 5.50). Beginning of 2024 End of 2024 End of 2025 End of 2026 End of 2027 Cumulative Temporary Difference Deferred Tax Liability
Exercise 16-4 (Algo) Taxable Income given; calculate deferred tax liability from book-tax difference; financial statement effects [LO16-2] Ayres Services acquired an asset for $120 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting Income, depreciation, and taxable Income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income Depreciation on the income statement $ 355 $375 $390 $ 425 30 30 30 Depreciation on the tax return. (54) Taxable income Required: 30 (34) (20) (12) $ 331 $ 371 $ 400 $ 443 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. Note: Leave no cell blank, enter "O" wherever applicable. Enter your answers in millions rounded to 2 decimal places (l.e., 5,500,000 should be entered as 5.50). Beginning of 2024 End of 2024 End of 2025 End of 2026 End of 2027 Cumulative Temporary Difference Deferred Tax Liability
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 16-4 (Algo) Taxable Income given; calculate deferred tax liability from book-tax difference;
financial statement effects [LO16-2]
Ayres Services acquired an asset for $120 million in 2024. The asset is depreciated for financial reporting
purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is
depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting Income, depreciation,
and taxable Income in 2024, 2025, 2026, and 2027 are as follows:
Pretax accounting income
Depreciation on the income
statement
Depreciation on the tax return
Taxable income
Required:
($ in millions)
2024 2025 2026
$ 355 $ 375 $ 390
30
30
(54)
(34)
2027
$ 425
30
30
(20)
(12)
$ 331 $ 371 $ 400 $ 443
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.
Note: Leave no cell blank, enter "O" wherever applicable. Enter your answers In milllons rounded to 2
decimal places (l.e., 5,500,000 should be entered as 5.50).
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%2Fdfe087e8-3e31-43c0-a59d-4a7e8bf9f1d3%2Fb6f7f100-9bc3-4779-823b-51b9f6fd2dea%2Fcghpyqe_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 16-4 (Algo) Taxable Income given; calculate deferred tax liability from book-tax difference;
financial statement effects [LO16-2]
Ayres Services acquired an asset for $120 million in 2024. The asset is depreciated for financial reporting
purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is
depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting Income, depreciation,
and taxable Income in 2024, 2025, 2026, and 2027 are as follows:
Pretax accounting income
Depreciation on the income
statement
Depreciation on the tax return
Taxable income
Required:
($ in millions)
2024 2025 2026
$ 355 $ 375 $ 390
30
30
(54)
(34)
2027
$ 425
30
30
(20)
(12)
$ 331 $ 371 $ 400 $ 443
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.
Note: Leave no cell blank, enter "O" wherever applicable. Enter your answers In milllons rounded to 2
decimal places (l.e., 5,500,000 should be entered as 5.50).
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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