Taxable income given; calculate deferred tax liability
Response to the following problem:
Ayres Services acquired an asset for $80 million in 2016. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset's cost is depreciated by MACRS. The enacted tax rate is 40%. Amounts for pretax accounting income, depreciation, and taxable income in 2016, 2017, 2018, and 2019 are as follows:
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($ in millions)
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2016
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2017
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2011
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2019
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Pretax accounting income
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$330
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$350
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$365
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$400
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Deprecation on the income statement
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20
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20
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20
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20
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Deprecation on the tax return
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(25)
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(33)
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(15)
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(7)
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Taxable income
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$325
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$337
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$370
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$413
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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.