Ayres Services acquired an asset for $80 million in 2024. The asset is depreciated for financial reporting purposes over four years ona straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 25%.Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows:Pretax accounting incomeDepreciation on the income statementDepreciation on the tax returnTaxable incomeRequired:2024$ 33020(25)$325Cumulative Temporary DifferenceDeferred Tax Liability($ in millions)2025$35020(33)$3372026$36520(15)$370 $413Beginning of 20242027$ 400For December 31 of each year, determine (a) the cumulative temporary book-tax difference for the depreciable asset and (b) thebalance 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 should be entered as 5.50).20(7)End of 2024End of 2025End of 2026End of 2027

Deferred tax liability is created when a tax obligation is accumulated in one financial year but…

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 Cumulative Temporary Difference Deferred Tax Liability 20 (25) $325 ($ in millions) 2025 $ 350 20 (33) $ 337 $ 370 2026 $365 20 (15) 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 should be entered as 5.50). 2027 $ 400 20 (7) $413 Beginning of 2024 End of 2024 End of 2025 End of 2026 End of 2027

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 Cumulative Temporary Difference Deferred Tax Liability 20 (25) $325 ($ in millions) 2025 $ 350 20 (33) $ 337 $ 370 2026 $365 20 (15) 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 should be entered as 5.50). 2027 $ 400 20 (7) $413 Beginning of 2024 End of 2024 End of 2025 End of 2026 End of 2027

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 5MC: At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial...

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At the beginning of 2019, Conley Company purchased an asset at a cost of 10,000. For financial reporting purposes, the asset has a 4-year life with no residual value and is depreciated by the straight-line method beginning in 2019. For tax purposes, the asset is depreciated under MACRS using a 5-year recovery period. Prior to 2019, Conley had no deferred tax liability or asset. The difference between depreciation for financial reporting purposes and income tax purposes is the only temporary difference between pretax financial income and taxable income. The current income tax rate is 30%, and no change in the tax rate has been enacted for future years. In 2019 and 2020, taxable income will be higher or lower than financial income by what amount?
Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of 24,500 for financial reporting purposes and of 20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a 3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019? a. 300 b. 450 c. 1,050 d. 1,350
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