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:

	($ in millions)
	2021				2022				2023				2024
Pretax accounting income	$	385			$	405			$	420			$	455
Depreciation on the income statement		42				42				42				42
Depreciation on the tax return		(60	)			(64	)			(26	)			(18	)
Taxable income	$	367			$	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).)

Answer 1

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