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KAST CONSTRUCTION COMPANY LLC AND SUBSIDIARY <br />SUPPLEMENTARY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS <br />As of and for the years ended December 31, 2013 and 2012 <br />NOTE D — INCOME TAXES <br />The company uses the percentage -of -completion method of reporting income from long- <br />term construction contracts for financial statement purposes and for income tax purposes. <br />At December 31, 2013, the federal tax return reflects a loss. Therefore, no income tax <br />liabilities passed through to the members. <br />Although not accrued in the accompanying consolidated financial statements, deferred <br />federal income tax liability, prior to future deductions, passed through to the members at <br />December 31, 2013, is as follows: <br />Timing Difference Deferred Tax <br />Difference in revenue recognition related to 10% and under <br />rule for longterm contracts $ 36,576 <br />Allowance for doubtful accounts (35,000) <br />Difference in depreciation methods 46,710 <br />Difference in tax method related to the twelve month rule <br />for prepaid expenses 8,108 <br />Accrued costs on Toss contracts (23,974) <br />IRC Section 451 cost allocations (11,047) <br />Total deferred federal tax liability pass-through $ 21,373 <br />NOTE E — ACCOUNTS PAYABLE <br />Included in accounts payable is approximately $5,001,000 and $3,443,000 at <br />December 31, 2013 and 2012, respectively, in amounts due to subcontractors, which have <br />been retained pending completion of related contracts and customer acceptance. <br />17 <br />