Question
Ayres Services acquired an asset for $200 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis
Ayres Services acquired an asset for $200 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the assets cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows: ($ in millions) 2024 2025 2026 2027 Pretax accounting income $ 405 $ 425 $ 440 $ 475 Depreciation on the income statement 50 50 50 50 Depreciation on the tax return (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.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started