Exercise 16-3 Taxable income given; calculate deferred tax liability [LO16-1 Ayr

Question

Exercise 16-3 Taxable income given; calculate deferred tax liability [LO16-1 Ayres Services acquired an asset for $94 miion in 2016 The asset is depreciated for financial over four years on a straight-line basis (no residual value) For tax purposes the assets by MACRS The enacted tax rate is 40%. Amounts for pretax accounting ncome, depreciation, and taxable income in 2016, 2017, 2018, and 2019 are as follows S in millions) Pretax accounting income Depreciation on the tax return Taxable income 2016 2017 2018 2019 $ 365 385 $ 400 $ 435 23.5 235 235 235 (285) (365) (18.5) (105) apreiation on the l 28305 185 (105 $ 360 372 $ 405 S 448 Required: Determine (a) the temporary book-tax difference for the depreciable asset and ib) the balance to be reported in the deferred tax liability EeLNout answers in millions rounded to 1 decimal place (i.e, 5.500,000 siouid be entered as 5.5.) (Negative amounts should be indicated by a minus sign of 2016 End of 2016 End of 2017 End of 2018 End Dmerence Deferred Tax Liability

Explanation / Answer

calculation of temporary difference for deferred tax liability account

temporary

difference

$5

($28.5-$23.5)

$13

($36.5-$23.5)

-$5

($18.5-$23.5)

-$13

($10.5-$23.5)

CALCULATION OF DEFERRED TAX LIABILITY

Deferred tax liability/(-asset)

[temporary difference * tax rate]

2016 2017 2018 2019

temporary

difference

$5

($28.5-$23.5)

$13

($36.5-$23.5)

-$5

($18.5-$23.5)

-$13

($10.5-$23.5)

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