[NinaSun]

At the end of year 1, Cody Co. reported a profit on a partially completed construction contract by applying the percentage-of-completion method. By the end of year 2, the total estimated profit on the contract at completion in year 3 had been drastically reduced from the amount estimated at the end of year 1. Consequently, in year 2, a loss equal to one-half of the year 1 profit was recognized. Cody used the completed-contract method for income tax purposes and had no other contracts. The year 2 balance sheet should includes a deferred tax:

Asset Liability

a. No No

b. Yes Yes

c. No Yes

d. Yes No

The answer is “c”. As there is a loss in year 2, I think under completed-contract method, the loss should be recognized immediately. So, there should be a tax benefit/asset because of operating loss carry back/forward

AUD-74,75 11/2014
REG-80 04/2015
FAR-74, 91 11/2015
BEC-79 08/2015