Question

On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2020, the book value of the equipment was $30 million and its tax basis was $20 million. At December 31, 2021, the book value of the equipment was $28 million and its tax basis was $12 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2021 was $50 million.

Answer 1

Answer:

taxable income 44,000,000

Explanation:

Beginning tax basis of the equipment: 20,000,000

ending tax bais of the equipment         12,000,000

depreciation for tax purposes:               8,000,000

accounting depreciation:

beginning value 30,000,000

ending value      28,000,000

book depreciation 2,000,000

Difference in depreciations:

8,000,000 - 2,000,000 = 6,000,000

income 50.000.000

less        6,000,000 temporary difference

taxable income 44,000,000