Mill, which began operations on January 1, 2004, recognizes income from long-term construction contracts under the percentage-of-completion method in its financial statements and under the completed-contract method for income tax reporting. Income under each method follows:
|
Year |
Completed-contract |
Percentage-of-completion |
|
|
2004 |
$ |
— |
$300,000 |
|
2005 |
400,000 |
600,000 |
|
|
2006 |
700,000 |
850,000 |
|
The income tax rate was 30% for 2004 through 2006. For years after 2006, the enacted tax rate is 25%. There are no other temporary differences. Mill should report in its December 31, 2006 balance sheet a deferred income tax liability of
- $ 87,500
- $105,000
- $162,500
- $195,000