Exercise 16-4 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference [LO16-2] Ayres Services acquired an asset for $112 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: Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income 2021 Cumulative Temporary Difference Deferred Tax Liability $350 28 (53) $325 ($ in millions) 2022 2023 2024 $370 $385 $420 28 28 28 (29) (19) (11) $369 $394 $437 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).) Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Exercise 16-4 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference
[LO16-2]
Ayres Services acquired an asset for $112 million in 2021. The asset is depreciated for financial reporting purposes over four years on a
straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 25%.
Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows:
Pretax accounting income
Depreciation on the income statement
Depreciation on the tax return
Taxable income
($ in millions)
$350
2021 2022 2023 2024
$370 $385 $420
28
28
(29) (19)
28
(11)
$369 $394 $437
Cumulative Temporary Difference
Deferred Tax Liability
28
(53)
$325
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).)
Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024
Transcribed Image Text:Exercise 16-4 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference [LO16-2] Ayres Services acquired an asset for $112 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income ($ in millions) $350 2021 2022 2023 2024 $370 $385 $420 28 28 (29) (19) 28 (11) $369 $394 $437 Cumulative Temporary Difference Deferred Tax Liability 28 (53) $325 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).) Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024
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