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l 1 <br /> Barth Construction, Inc. <br /> NOTES TO FINANCIAL STATEMENTS <br /> (See Independent Accountants' Review Report) <br /> September 30, 2011 <br /> NOTE H - INCOME TAXES (continued) <br /> Revenue from construction contracts is reported for income tax purposes on the completed contract method, <br /> while reporting for financial statement purposes is on the percentage-of-completion method. Certain overhead <br /> expenses are required to be allocated to uncompleted contracts and deferred until completion for income tax <br /> purposes, while they are expensed as incurred for financial statement purposes. Depreciation is computed using <br /> shorter lives and accelerated methods for income tax purposes, but is computed using economic useful lives and <br /> the straight line method for financial statement reporting. The components of income tax expense (benefit) are: <br /> Income taxes currently payable: <br /> Federal $ 14,488 <br /> State 4.200 $ 182688 <br /> Deferred tax (benefit) arising from : <br /> Income recognized on percentage of completion <br /> method for financial accounting over net revenue <br /> on completed contract method for tax purposes (60, 500) <br /> Expenses deferred for tax purposes, but expensed for <br /> financial accounting 200 <br /> Excess of tax over financial accounting depreciation 11000 <br /> (59 .300) <br /> Total income tax expense (benefit) (40.6121 <br /> NOTE I - BACKLOG <br /> The estimated gross revenue on work remaining to be performed on signed contracts was $2,406,728 <br /> at <br /> September 30, 2011 . <br /> NOTE J — FAIR VALUE MEASUREMENTS <br /> Fair values of assets are measured on a recurring basis. All of the assets valued at fair value are "available for <br /> sale" securities and are determined using quoted prices in active markets for identical assets (Level 1 ), the value <br /> of which is $241 ,074 at September 30, 2011 . There were no transfers into or out of Level 1 during the <br /> year <br /> ended September 30, 2011 . <br /> NOTE K — RESTATEMENT OF RETAINED EARNINGS <br /> For the year ended September 30, 2010, information related to expected earnings and remaining costs of <br /> construction on two contracts were inadvertently misinterpreted and resulted in an error in the financial <br /> statements. The result of which were overstatements of construction revenue and costs and estimated billings in <br /> excess of billings on uncompleted contracts, and related understatements of net loss and billings in excess of <br /> costs and estimated earnings on uncompleted contract. As a result, retained earnings were overstated <br /> by <br /> $ 132,552 at September 30, 2010. The beginning balance of retained earnings has been restated to reflect this <br /> error and is presented in these financial statements on page 5 . <br /> NOTE L — DATE OF MANAGEMENT' S REVIEW <br /> In preparing the financial statements, management has evaluated events and transactions for potential <br /> recognition or disclosure through February 8 , 2012, the date the financial statements were available to <br />be <br /> issued. <br /> - 10 - <br />