Ayres Services acquired an asset for $176 million in 2021. The asset is depreciated for financial...

Ayres Services acquired an asset for $176 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 $390 $410 $425 $460

Depreciation on the income statement 44 44 44 44

Depreciation on the tax return (61) (69) (27) (19)

Taxable income $373 $385 $442 $485
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 "0" wherever applicable. Enter your answers in millions rounded to 2 decimal place (i.e., 5,500,000 should be entered as 5.50).)

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Expert Solution

	2021	2022	2023	2024
Depreciation on Income Statement	$ 44.00	$ 44.00	$ 44.00	$ 44.00
Depreciation on Tax Return	$ 61.00	$ 69.00	$ 27.00	$ 19.00
Temporary Difference	$ (17.00)	$ (25.00)	$ 17.00	$ 25.00
(a) Cumulative Temporary Difference	$ (17.00)	$ (42.00)	$ (25.00)	$ -

(b) Deferred Tax Liability Balance	$ 4.25	$ 10.50	$ 6.25	$ -

ekkarill92 answered 1 year ago

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