Posted by Robert on Wednesday, September 28, 2011 at 7:12am.
Ayres Services acquired an asset for $80 million in 2011. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2011, 2012, 2013, and 2014 are as follows:
($in millions)
for 2011
pretax accounting income - $330
deprecation on the income statement - 20
depreciation on the tax return - (25)
taxable income - $325
for 2012
pretax accounting income - $350
deprecation on the income statement - 20
depreciation on the tax return - (33)
taxable income - $337
for 2013
pretax accounting income - $365
deprecation on the income statement - 20
depreciation on the tax return - (15)
taxable income - $370
for 2014
pretax accounting income - $400
deprecation on the income statement - 20
depreciation on the tax return - (7)
taxable income - $413
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.
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