Question

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: Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income 2021 $385 - 42 (60) $367 ($ in millions) 2022 2023 2024 $405 $420 $455 42 42 42 (64) (26) (18) $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. (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).) Beginning of 2021 End of 2021 End of 2022 End of 2023 End of 2024 Cumulative Temporary Difference Deferred Tax Liability

Answer 1

The answer has been presented in the supporting sheet/ For detailed answer refer to the supporting sheet.

Answer Beginning of 2021 End of 2021 End of 2022 End of 2024 Cumulative Temperory Difference 18 End of 2023 24 (40+(26-42)) (18+(64-42)) (24+(18-42)) - Deferred Tax Liability (60-42) 4.5 (18*25%) 10 10% + (40*25%) (24*25%) - Formula Ending Balance of Cummulative Temperory difference = Beginning balance of difference +(Tax depreciation - book depreciation) 2 Deffered tax liaility = cending cummulative temeperory difference * tax rate