Sayaka Tar and Gravel Ltd operates a road construction

business #1382

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.

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 (d) Prepare the income statement for 2014, beginning with the line "Income before income tax."

(e) Provide the balance sheet presentation for any resulting deferred tax balance sheet
accounts at December 31, 2014. Be specific about the classification.

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

Sayaka Tar and Gravel Ltd operates a road construction business

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