E 16-5 Taxable income given; calculate deferred tax liability from book-tax difference; 100% depreciationin the year of purchase; financial statement effects LO16-2[This exercise is a variation of E 16-4, modified to have the asset fully depreciated in the year of purchase.] Ayres Servicesacquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows:($ in millions)2024202520262027Pretax accounting income$330$350$365$400Depreciation on the income statement20202020Depreciation on the tax return(80)(0)(0)(0)Taxable income$270$370$385$420Required:For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance tobe reported in the deferred tax liability account.

Deferred tax liability arises from temporary differences between financial reporting and tax…

Answered: Required: For December 31 of each year,…

Required: For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account.

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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