Ayres Services acquired an asset for $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on astraight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows:($ in millions)2022$38016(0)$396Pretax accounting incomeDepreciation on the income statementDepreciation on the tax return2021$360162023$395162024$43016(0)(64)$312(0)Taxable income$411$446Required:For December 31 of each year, determine (a) the cumulative temporary book-tax difference for the depreciable asset and (b) thebalance to be reported in the deferred tax liability account. (Leave no cell blank, enter "O" wherever applicable. Enter your answersin millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)Beginning of 2021End of 2021End of 2022End of 2023End of 2024Cumulative Temporary DifferenceDeferred Tax Liability

Solution: - The following formulas used to calculate the cumulative temporary book tax difference…

Ayres Services acquired an asset for $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2022 $380 2021 Pretax accounting income Depreciation on the income statement Depreciation on the tax return 2023 $395 16 (0) 2024 $430 16 (0) $360 16 16 (64) (0) Taxable income $312 $396 $411 $446 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 "O" wherever applicable. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) 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 $64 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2021. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: ($ in millions) 2022 $380 2021 Pretax accounting income Depreciation on the income statement Depreciation on the tax return 2023 $395 16 (0) 2024 $430 16 (0) $360 16 16 (64) (0) Taxable income $312 $396 $411 $446 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 "O" wherever applicable. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) 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 7P: Deferred Tax Liability: Depreciation At the beginning of 2019, its first year of operations, Cooke...

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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.