PROBLEM 6–4 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 percentageof-

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 Year 4 Year 5 1 20% 60% 20%

2 30 60 10%

3 10 30 50 10%

Required:

For each of the five years, Year 1 through Year 5, compute:

a. Financial reporting (book) income.

b. Taxable income.

c. Change in deferred income taxes.