E 16-5 Taxable income given; calculate deferred tax liability from book-tax difference; 100% depreciation in the year of purchase; financial statement effects LO16-2 [This exercise is a variation of E 16-4, modified to have the asset fully depreciated in the year of purchase.] Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight- line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income $330 $350 $365 $400 Depreciation on the income statement 20 20 20 20 Depreciation on the tax return (80) (0) (0) (0) Taxable income $270 $370 $385 $420 Required: For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account.

E 16-5 Taxable income given; calculate deferred tax liability from book-tax difference; 100% depreciation in the year of purchase; financial statement effects LO16-2 [This exercise is a variation of E 16-4, modified to have the asset fully depreciated in the year of purchase.] Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight- line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income $330 $350 $365 $400 Depreciation on the income statement 20 20 20 20 Depreciation on the tax return (80) (0) (0) (0) Taxable income $270 $370 $385 $420 Required: For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account.

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 5RE: Turnip Company purchased an asset at a cost of 10,000 with a 10-year life during the current year....

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E 16-5 Taxable income given; calculate deferred tax liability from book-tax difference; 100% depreciation in the year of purchase; financial statement effects LO16-2 [This exercise is a variation of E 16-4, modified to have the asset fully depreciated in the year of purchase.] Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight- line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income $330 $350 $365 $400 Depreciation on the income statement 20 20 20 20 Depreciation on the tax return (80) (0) (0) (0) Taxable income $270 $370 $385 $420 Required: For December 31 of each year, determine (a) the temporary book-tax difference for the depreciable…
Exercise 16-5 (Algo) Taxable income given; calculate deferred tax liability from book-tax difference; 100% depreciation in the year of purchase; financial statement effects [LO16-2] Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: 2024 ($ in millions) 2025 2026 2027 Pretax accounting income $ 370 $ 390 Depreciation on the income statement 20 20 $ 405 20 Depreciation on the tax return (80) (0) (0) $ 440 20 (8) $ 310 $ 410 $ 425 $ 460 Taxable income Required: For December 31 of each year, determine (a) the cumulative temporary book-tex difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account.…
1. Pretax accounting income was S70 million and taxable income was $8 million for the year ended December 31, 2021. 2. The difference was due to three items: a. Tax depreciation exceeds book depreciation by $60 million in 2021 for the business complex acquired that year. This amount is scheduled to be $80 million in 2022 and to reverse as ($70 million) and ($70 million) in 2023 and 2024, respectively. b Insurance of $8 millian was paid in 2021 for 2022 coverage C. A $6 million loss contingency was accrued in 2021, to be paid in 2023. 3. No temporary differences existed at the beginning of 2021. 4. The tax rate is 25% Required: 1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry 2. Assume the enacted federal income tax law specifies that the tax rate will change from 25% ta 20% in 2023. When scheduling the reversal of the depreciation difference, you were uncertain as to how to deal with the fact that the difference will continue…
1. Prior to 2022, taxable income and accounting income were identical. 2. Accounting income was $1.7 million in 2022 and $1.46 million in 2023. 3. On January 1, 2022, equipment costing $1.97 million was purchased. It is being depreciated on a straight-line basis over eight years for financial reporting purposes, and is a Class 8-20% asset for tax purposes. Tax-exempt interest income of $70,000 was received in 2023. 4. 5. The tax rate is 30% for all periods. 6. Taxable income is expected in all future years. 7. Sunland had 100,000 common shares outstanding throughout 2023. (a) ง Calculate the amount of capital cost allowance and depreciation expense for 2022 and 2023, and the corresponding carrying amount and undepreciated capital cost of the depreciable assets at the end of 2022 and 2023. Capital Cost Allowance Undepreciated Capital Cost Depreciation Expense Net Book Value
A company acquired an asset for $1,200,000 in 2024. 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 19%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: Asset's Cost Useful life Enacted tax rate Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income Required: Cumulative Temporary Difference Deferred Tax Liability Jan. 1, 2024 $1,200,000 $0 0 4 years 19% 2024 $3,700,000 300,000 (399,960) $3,600,040 2025 $4,100,000 300,000 (533,400) $3,866,600 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. Each cell requires a formula, even if the result is $0. 2026 $4,400,000 300,000…
Auburn Rentals acquired an asset for $160 million in 2021. The asset is depreciated for financial reporting purposes over four years on a straight-line basis with no residual value. For tax purposes the asset is depreciated using an accelerated method. The enacted tax rate is 30%. Annual amounts for pretax accounting income, depreciation, and taxable income are as follows: 2021 2022 2023 2024 Pretax accounting income $500 $550 $600 $650 Depreciation on the income statement 40 40 40 40 Depreciation on the tax return (50) (66) (30) _(14). Taxable income 450 484 570 636 On December 31, 2023, what amount of deferred tax liability would Auburn report? Multiple Choice S3.2 million $10.0 million $26.0 million $7.8 million
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…
Ayres Services acquired an asset for $80 million in 2024. 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 2024, 2025, 2026, and 2027 are as follows: Pretax accounting income Depreciation on the income statement Depreciation on the tax return Taxable income Required: 2024 $ 330 20 (25) $325 Cumulative Temporary Difference Deferred Tax Liability ($ in millions) 2025 $350 20 (33) $337 2026 $365 20 (15) $370 $413 Beginning of 2024 2027 $ 400 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. Note: Leave no cell blank, enter "0" wherever applicable. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000…
Ayres Services acquired an asset for $82 million in 2018. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2018, 2019, 2020, and 2021 are as follows: Pretax accounting income Depreciation on the income statement Depreciation on the tax return. Taxable income. ($ in millions) 2019 355 $ 20.5 (33.5) Temporary Difference Deferred Tax Liability 2018 $ 335 $ 20.5 (25.5) $ 330 $ 342 $ 375 2020 2021 370 $ 405 20.5 20.5 (15.5) (7.5) $ 418 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…
Ayres Services acquired an asset for $200 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: 2021 $405 $425 ($ in millions) 2022 2023 2024 $440 Pretax accounting income Depreciation on the income statement Depreciation on the tax return $475 50 50 50 50 (64) (84) (30) (22) Taxable income $391 $391 $460 $503 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 2 decimal place (i.e., 5,500,000 should be entered as 5.50).) Beginning of End of 2021 End of End of End…
Ayres Services acquired an asset for $96 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). Ayers deducted 100% of the asset's cost for income tax reporting in 2024. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income $ 480 $ 500 $ 515 $ 550 Depreciation on
Computation of taxable income. The records for Bosch Co. show this data for 2018: · Gross profit on installment sales recorded on the books was $480,000. Gross profit from collections of installment receivables was $320,000. Life insurance on officers was $3,800. Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2018. Interest received on tax exempt Iowa State bonds was $9,000. The estimated warranty liability related to 2018 sales was $21,600. Repair costs under warranties during 2018 were $13,600. The remainder will be incurred in 2019. Pretax financial income is $700,000. The tax rate is 30%. Instructions (a) Prepare a schedule starting with pretax financial income and compute taxable income. (b) Prepare the journal entry to record income taxes for 2018.