Big-Deal Construction Company specializes in building dams. During Years 3 4 and 5 three dams

QUESTION

Big-Deal Construction Company specializes in building dams. During Years 3, 4, and 5, three dams were completed. The first dam was started in Year 1 and
completed in Year 3 at a profit before income taxes of $120,000. The second and third dams were started in Year 2. The second dam was completed in Year 4
at a profit before income taxes of $126,000, and the third dam was completed in Year 5 at a profit before income taxes of $150,000. The company uses
percentage of- completion accounting for financial reporting and the completed-contract method of accounting for income tax purposes. The applicable income
tax rate is 50% for each of the Years 1 through 5. Data relating to progress toward completion of work on each dam as reported by the company”s engineers
are given here:

Dam

Year 1

Year 2

Year 3

ANSWER:

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