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Item 2
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Ayres Services acquired an asset for $232 million in 2024. The asset is depreciated for financial reporting purposes over four years on a straight-line basis (no residual value). For tax purposes the asset’s cost is depreciated by MACRS. The enacted tax rate is 25%. Amounts for pretax accounting income, depreciation, and taxable income in 2024, 2025, 2026, and 2027 are as follows:
($ in millions)2024202520262027Pretax accounting income$ 425$ 445$ 460$ 495Depreciation on the income statement58585858Depreciation on the tax return(68)(104)(34)(26)Taxable income$ 415$ 399$ 484$ 527
Required:
For December 31 of each year, determine (a) the cumulative 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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