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' Barth Construction, Inc . <br /> NOTES TO FINANCIAL STATEMENTS <br /> (See Accountants ' Review Report) <br /> ' September 30, 2002 <br /> NOTE H - INCOME TAXES <br /> Deferred income taxes arise from timing differences resulting from income and expense items reported for <br /> financial accounting and tax purposes in different periods. Deferred taxes are classified as current <br /> or <br /> noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred taxes <br /> arising from timing differences that are not related to an asset or liability are classified as current or noncurrent <br /> depending on the periods in which the timing differences are expected to reverse. <br /> The components of income tax expense (benefit) are: <br /> Currently payable $ 89945 <br /> ' Deferred tax benefit ( 8.0001 . <br /> Total income tax expense 945 <br /> ' The principal sources of timing differences are different depreciation methods and different long term contract <br /> revenue recognition methods used for financial accounting and income tax reporting purposes. <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. <br /> The components of income tax expense (benefit) are: <br /> Income taxes currently payable: <br /> Federal $ 6,654 <br /> ' State 2.291 $ 8,945 <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 (3 ,900) <br /> Expenses deferred for tax purposes, but expensed for <br /> financial accounting (2,390) <br /> Excess of tax over financial accounting depreciation ( 1 .710) <br /> (8.000) <br /> Total income tax expense 945 <br /> NOTE I - BACKLOG <br /> The estimated gross revenue on work to be performed on signed contracts was $6,377,748 at <br /> September 30, 2002. <br /> ' 9 <br />