Question

On January 1, 2021, Ameen Company purchased major pieces of manufacturing equipment for a total of $72 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2023, the book value of the equipment was $66 million, and its tax basis was $56 million. At December 31, 2024, the book value of the equipment was $64 million, and its tax basis was $49 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2024 was $50 million.

A. What is the difference between book value and tax basis at December 31, 2023?
B. What is the difference between book value and tax basis at December 31, 2024?

Answer 1

The difference between the book value and tax basis for Ameen Company was $10 million at the end of 2023 and $15 million at the end of 2024, reflecting the use of different depreciation methods for financial statements and tax reporting.

Step-by-step explanation:

The difference between the book value and tax basis of a company's assets can result from using different depreciation methods for financial reporting and tax purposes. For Ameen Company, we see two different moments in time:

• At December 31, 2023, the difference between the book value ($66 million) and the tax basis ($56 million) is $10 million.
• At December 31, 2024, the difference between the book value ($64 million) and the tax basis ($49 million) is $15 million.