Question

axable income given; calculate deferred tax liability

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 (noresidual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, andtaxable income in 2011, 2012, 2013, and 2014 are as follows:

($ in millions)

2011 2012 2013 2014
Pretax accounting income $330 $350 $365 $400
Depreciation on the income statement 20 20 20 20
Depreciation on the tax return (25) (33) (15) (7)

Taxable income $325 $337 $370 $413

Required:

Determine (a) the temporary book–tax difference for the depreciable asset and (b) the balance to be reported in the deferred tax liability account. (Enter your answersin millions. Negative amounts should be indicated with a minus sign. Leave no cells blank – be certain to enter "0" wherever required. Round your answers to 1 decimalplace. Omit the "$" sign in your response.)

Beginning of End of End of End of End of End 2011 2011 2012 2013 2014
Temporary difference $ $ $ $ $
Deferred tax liability $ $ $ $ $

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