Question

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

• $3.2 million

• $26.0 million

• $7.8 million

• $10.0 million

Answer 1