Ayres Services acquired an asset for $168 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2021 2022 2023 2024 Pretax accounting income $ 385 $ 405 $ 420 $ 455 Depreciation on the income statement 42 42 42 42 Depreciation on the tax return (60 ) (64 ) (26 ) (18 ) Taxable income $ 367 $ 383 $ 436 $ 479 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. Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024 Cumulative Temporary Difference Deferred Tax Liability
Ayres Services acquired an asset for $168 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2021 2022 2023 2024 Pretax accounting income $ 385 $ 405 $ 420 $ 455 Depreciation on the income statement 42 42 42 42 Depreciation on the tax return (60 ) (64 ) (26 ) (18 ) Taxable income $ 367 $ 383 $ 436 $ 479 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. Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024 Cumulative 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 5RE: Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year....
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Ayres Services acquired an asset for $168 million in 2021. The asset is
| ($ in millions) | ||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | |||||||||||||
| Pretax accounting income | $ | 385 | $ | 405 | $ | 420 | $ | 455 | ||||||||
| Depreciation on the income statement | 42 | 42 | 42 | 42 | ||||||||||||
| Depreciation on the tax return | (60 | ) | (64 | ) | (26 | ) | (18 | ) | ||||||||
| Taxable income | $ | 367 | $ | 383 | $ | 436 | $ | 479 | ||||||||
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
Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024
Cumulative Temporary Difference
Deferred Tax Liability
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