Question - Flintstone Paving Inc (FPI) in its first year of business obtained a contract to construct a road, which is estimated to be completed over 3 years starting June 2017. FPI 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 as long as possible, FPI uses the completed-contract method allowed by CRA. As of its first fiscal year end, the accounts related to the contract had the following balances:
A/R $328,000;
Construction in Process $502,000;
Revenue from Long-Term Contracts $502,000;
Construction Expenses $344,000;
Billings on Construction in Process $414,000
The accounts related to the equipment purchased to construct the road had the following balances at the end of the first fiscal year ending Dec 31, 2017 for accounting and tax purposes:
Equipment $1,200,000;
Accumulated Depreciation Equip $182,000;
Undepreciated Capital Cost $1,077,000.
FPI's tax rate is 41% for 2017 and subsequent years. Income before income tax for the year ended Dec 31, 2017 was $189,000. FPI reports under IFRS.
Calculate: 1. Deferred tax, 2. Tax payable, 3. Record journal entries for income tax for 2017.