Question

Sayaka Tar and Gravel Ltd. operates a road construction business. In its first year of operations, the company obtained a contract to construct a road for the municipality of Cochrane West, and it is estimated that the project will be completed over a three-year period starting in June 2011. Sayaka uses the percentage-of-completion method of recognizing revenue on its long-term construction contracts. For tax purposes, and in order to postpone the tax on such revenue for as long as possible, Sayaka uses the completed-contract method allowed by the CRA. By its first fiscal year end, the accounts related to the contract had the following balances:
Accounts Receivable............ $320,000
Construction in Process .......... 500,000
Revenue from Long-Term Contract ...... 500,000
Construction Expense ........... 350,000
Billings on Construction in Process...... 400,000
The accounts related to the equipment that Sayaka purchased to construct the road had the following balances at the end of the first fiscal year ending December 31, 2011, for accounting and tax purposes:
Construction Equipment...............$1,100,000
Accumulated Depreciation—Construction Equipment...170,000
Undepreciated Capital Cost...............980,000
Sayaka’s tax rate is 45% for 2011 and subsequent years. Income before income tax for the year ended December 31, 2011, was $195,000. Sayaka reports under the PE GAAP future income taxes method.
Instructions
(a) Calculate the future income tax asset or liability balances at December 31, 2011.
(b) Calculate taxable income and income taxes payable for 2011.
(c) Prepare the journal entries to record income taxes for 2011.
(d) Prepare the income statement for 2011, beginning with the line “Income before income taxes.”
(e) Provide the balance sheet presentation for any resulting future tax balance sheet accounts at December 31, 2011. Be
specific about the classification.
(f) Repeat the balance sheet presentation in part (e) assuming Sayaka follows IFRS.


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  • CreatedAugust 23, 2015
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