Question: The Lance Construction Company which began business on January 1

The Lance Construction Company, which began business on January 1, 2014, builds custom homes on the buyer’s land. Lance’s income and job costs from construction contracts that were started and completed during the same fiscal year are as follows:

Some contracts were started in the last quarter of one fiscal year and completed in the first quarter of the next. Total estimated revenues and costs equaled actual total revenues and costs for each contract. The following table shows the total contract revenues and costs for these contracts. Fifty percent (50%) of the work on these contracts was completed in the year that construction began. For example, for those contracts begun in 2014 and completed in 2015, 50% of total costs were incurred in 2014 and 50% were incurred in 2015.

Domiciled in the United States, Lance prepares consolidated financial statements in accordance with U.S. GAAP and pays taxes under U.S. tax law. However, Lance is trying to increase its appeal to European investors and, therefore, decided to prepare an additional set of financial statements in accordance with International Financial Reporting Standards (IFRS).
Because all of its construction contracts are completed in less than six (6) months, Lance concludes that the completed-contract method is more appropriate for financial reporting in the United States. Lance also qualifies for and will use the completed-contract method for U.S. tax reporting.
The completed-contract method is not permitted under IFRS and Lance is required to use the percentage-of-completion method as long as it can make reliable estimates of total contract costs, revenues, and stage of completion of the project.
Lance invoices customers promptly as work is completed. Cash collections are not affected by its choice of accounting policy for financial reporting purposes.
The enacted tax rate is 35%. No change in the tax law has been proposed.
Note to students: Before completing the requirements of this problem you should review the Global Vantage Point section of Chapter 3.

Determine the following amounts under U.S. GAAP and IFRS and explain the classification of any deferred tax assets or liabilities on the balancesheet.
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  • CreatedSeptember 10, 2014
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