Sayaka Tar and Gravel Ltd. operates a road construction business. In its first year of operations, the

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 2014. 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 Contracts..........500,000
Construction Expenses...........................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, 2014, for accounting and tax purposes:
Equipment........................................$1,100,000
Accumulated Depreciation-Equipment.........170,000
Undepreciated Capital Cost........................980,000
Sayaka's tax rate is 25% for 2014 and subsequent years. Income before income tax for the year ended December 31, 2014, was $195,000. Sayaka reports under the ASPE future/deferred income taxes method.
Instructions
(a) Calculate the deferred tax asset or liability balances at December 31, 2014.
(b) Calculate taxable income and income tax payable for 2014.
(c) Prepare the journal entries to record income taxes for 2014.
(d) Prepare the income statement for 2014, beginning with the line "Income before income tax."
(e) Provide the presentation for any resulting deferred tax accounts at December 31, 2014. Be specific about the classification.
(f) Repeat the presentation in part (e) assuming Sayaka follows IFRS.
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...