Ayres Services acquired an asset for $116 million in 2018. The asset is depreciated for financial reporting purposes over four years on astraight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 40%.Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows:(S in millions)2019$ 420 $ 440 $ 45529.0201820202021$ 490Pretax accounting incomeDepreciation on the income statementDepreciation on the tax return29.029.029.0(34.0) (42.0) (24.0)415 $ 427(16.0)$ 503Taxable income$ 460Required:Determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred taxliability account. (Leave no cell blank, enter "0" wherever applicable. Show all amounts as positive amounts. Enter your answers inmillions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)Beginning of 2018 End of 2018 End of 2019End of 2020 End of 2021Temporary DifferenceDeferred Tax Liabillity

Ayres Services is using MACRS for tax purposes and straight-line depreciation for the asset. As the…

Ayres Services acquired an asset for $116 million in 2018. 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 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows: (S in millione) 2020 2018 2019 2021 Pretax accounting incone Depreciation on the income statement Depreciation on the tax return $ 420 $ 440 $ 455 $ 490 29.0 29.0 29.0 29.0 (34.0) (42.0) $ 415 $ 427 (24.0) (16.0) $ 460 $ 503 Taxable incone Required: Determine (a) the 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. Show all amounts as positive amounts. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Beginning of 2018 End of 2018 End of 2019 End of 2020 End of 2021 Temporary Difference Deferred Tax Liability

Ayres Services acquired an asset for $116 million in 2018. 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 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows: (S in millione) 2020 2018 2019 2021 Pretax accounting incone Depreciation on the income statement Depreciation on the tax return $ 420 $ 440 $ 455 $ 490 29.0 29.0 29.0 29.0 (34.0) (42.0) $ 415 $ 427 (24.0) (16.0) $ 460 $ 503 Taxable incone Required: Determine (a) the 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. Show all amounts as positive amounts. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Beginning of 2018 End of 2018 End of 2019 End of 2020 End of 2021 Temporary Difference Deferred Tax Liability

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter18: Accounting For Income Taxes

Section: Chapter Questions

Problem 5MC: At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial...

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Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of 24,500 for financial reporting purposes and of 20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a 3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019? a. 300 b. 450 c. 1,050 d. 1,350
Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year. Turnip uses differing depreciation methods for financial reporting and income tax purposes. The depreciation expense during the current year for financial reporting is 1,000 and for income tax purposes is 2,000. Turnip is subject to a 30% enacted future tax rate. Prepare a schedule to compute Turnips (a) ending future taxable amount, (b) ending deferred tax liability, and (c) change in deferred tax liability (deferred tax expense) for the current year.
Ironwood Corporation has ordinary taxable income of $65,000 in 2019, and a short-term capital loss of $15,000. What is the corporation's tax liability for 2019? $7,500 $5,250 $10,500 $13,650 None of the above
Deferred Tax Liability: Depreciation At the beginning of 2019, its first year of operations, Cooke Company purchased an asset for 100,000. This asset has an 8-year economic life with no residual value, and it is being depreciated by the straight-line method for financial reporting purposes. For tax purposes, however, the asset is being depreciated using the MACRS (200%, 5-year life) method. During 2019, Cooke reported pretax financial income of 51,500 and taxable income of 44,000. The depreciation temporary difference caused the difference between the two income amounts. The tax rate in 2019 was 30%, and no change in the tax rate had been enacted for future years. Required: 1. Prepare a schedule that shows for each year, 2019 through 2026, (a) MACRS depreciation, (b) straight line depreciation, (c) the annual depreciation temporary difference, and (d) the accumulated temporary difference at the end of each year. 2. Prepare a schedule that computes for each year, 2019 through 2026, (a) the ending deferred tax liability and (h) the change in the deferred tax liability. 3. Prepare Cookes income tax journal entry at the end of 2019. 4. Next Level Explain what happens to the balance of the deferred tax liability at the end of 2019 through 2026.