Ayres Services acquired an asset for $116 million in 2018. 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 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows: (S in millione) 2020 2018 2019 2021 Pretax accounting incone Depreciation on the income statement Depreciation on the tax return $ 420 $ 440 $ 455 $ 490 29.0 29.0 29.0 29.0 (34.0) (42.0) $ 415 $ 427 (24.0) (16.0) $ 460 $ 503 Taxable incone Required: Determine (a) the 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. Show all amounts as positive amounts. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Beginning of 2018 End of 2018 End of 2019 End of 2020 End of 2021 Temporary Difference Deferred Tax Liability

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Ayres Services acquired an asset for $116 million in 2018. 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 40%.
Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows:
(S in millions)
2019
$ 420 $ 440 $ 455
29.0
2018
2020
2021
$ 490
Pretax accounting income
Depreciation on the income statement
Depreciation on the tax return
29.0
29.0
29.0
(34.0) (42.0) (24.0)
415 $ 427
(16.0)
$ 503
Taxable income
$ 460
Required:
Determine (a) the 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. Show all amounts as positive amounts. Enter your answers in
millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
Beginning of 2018 End of 2018 End of 2019End of 2020 End of 2021
Temporary Difference
Deferred Tax Liabillity
Transcribed Image Text:Ayres Services acquired an asset for $116 million in 2018. 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 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows: (S in millions) 2019 $ 420 $ 440 $ 455 29.0 2018 2020 2021 $ 490 Pretax accounting income Depreciation on the income statement Depreciation on the tax return 29.0 29.0 29.0 (34.0) (42.0) (24.0) 415 $ 427 (16.0) $ 503 Taxable income $ 460 Required: Determine (a) the 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. Show all amounts as positive amounts. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Beginning of 2018 End of 2018 End of 2019End of 2020 End of 2021 Temporary Difference Deferred Tax Liabillity
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