Ayres Services acquired an asset for 116 million in 2016 The

Ayres Services acquired an asset for $116 million in 2016. 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 2016, 2017, 2018, and 2019 are as follows: (S in millions) Pretax accounting income Depreciation on the income statement Depreciation on the tax returm 2016 2017 2018 2019 S 420 S440 S 455 S 490 29.0 (34.0) (42.0) (24.0 (16.0) 29.0 29.0 29.0 Taxable income S 415 S 427 460 503 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. (Negative amounts should be indicated by a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Beginning of 2016 End of 2016 End of 2017 End of 2018 End of 2019 Temporary Difference Deferred Tax Liability

Solution

Beginning of 2016 End 0f 16 End of 2017 End of 2018 End of 2019 Depreciation on the income statement (a) - $29 $29 $29 $29 Depreciation on the Tax return (b) $34 $42 $24 $16 Temporary Difference (a-b) - -$5 -$13 $5 $13 Deffered Tax liability @40% Nil $2 $5 -$2 -$5