Sayaka Tar and Gravel Ltd. operates a road construction business. In its first year of operations, the company won a contract to build a road for the municipality of Cochrane West. It is estimated that the project will be completed over a three-year period starting in June 2023. 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:

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 ended December 31, 2023, for accounting and tax purposes:

Sayaka’s tax rate is 25% for 2023 and subsequent years. Income before income tax for the year ended December 31, 2023, was $195,000. Sayaka reports under IFRS.

Instructionsa. Calculate the deferred tax asset or liability balances at December 31, 2023.

b. Calculate taxable income and income tax payable for 2023.

c. Prepare the journal entries to record income taxes for 2023.

d. Prepare the income statement for 2023, beginning with the line “Income before income tax.”

e. Provide the SFP presentation for any resulting deferred tax balance sheet accounts at December 31, 2023. Be specific about the classification.

f. Repeat the balance sheet presentation in part (e) assuming Sayaka follows ASPE.

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Accounts Receivable Contract Asset/Liability (net of billings to date of $400,000) Revenue from Long-Term Contracts Construction Expenses $320,000 100,000 500,000 350,000