Ayres Services acquired an asset for $144 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset/s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: _ ($ in millions) ____________ 2021 2022 2023 2024 Pretax accounting income $370 $390 $405 $440 Depreciation on the income statement 36 36 36 36 Depreciation on the tax return (57) (49) (23) (15) Taxable income $349 $377 $418 $461 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 balance, 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 Cumulative Temporary Difference ___________ __________ __________ _________ ___________ Deferred Tax Liability _____________ __________ __________ _________ ____________

Ayres Services acquired an asset for $144 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset/s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2021, 2022, 2023, and 2024 are as follows: _ ($ in millions) ______ 2021 2022 2023 2024 Pretax accounting income $370 $390 $405 $440 Depreciation on the income statement 36 36 36 36 Depreciation on the tax return (57) (49) (23) (15) Taxable income $349 $377 $418 $461 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 balance, 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 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 5MC: At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial...

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_ ($ in millions) ____________

2021 2022 2023 2024

Pretax accounting income $370 $390 $405 $440

Depreciation on the income statement 36 36 36 36

Depreciation on the tax return (57) (49) (23) (15)

Taxable income $349 $377 $418 $461

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 balance, 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

Cumulative Temporary Difference ___________ __________ __________ _________ ___________

Deferred Tax Liability _____________ __________ __________ _________ ____________

Expert Solution

Step 1

The temporary difference is the difference between the carrying value of the liability or assets in the tax base and the statement of financial position. The temporary difference results in either deferred tax assets or liability.

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