For Financial Reporting Purposes, Structural Builders Uses the Completed Contract

question 200

Essay

For financial reporting purposes, Structural Builders uses the completed contract method of accounting for long-term contracts.For tax purposes, Structural Builders uses the percentage-of-completion or the installment method of accounting for the same contract.The contract is completed in Year 3.The terms of the contract, and Structural Builders' estimate of costs to be incurred are as follows:
$\begin{array}{lll}&\text { Cash Receipts }&\text { Cost Incurred }\\\text { Year 1 } & \$ 1,000,000 & \$ 1,500,000 \\\text { Year 2 } & 2,000,000 & 1,500,000 \\\text { Year 3 } & 3,000,000 & 1,500,000\\\text { Total }&\$6,000,000&\$4,500,000\end{array}$ Required:

What amount of deferred tax asset/liability will be reported by Structural Builders each year if:

a. The percentage-of-completion method is used for tax reporting?
b. The installment method is used for tax reporting? Assume the tax rate is 35%.

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