Reference no: EM132773512

On January 1, 2014, Valley Company entered into a 3-year construction contract that had an estimated gross revenue of P3,000,000.

The entity used the percentage of completion method in recognizing income on its books and reported construction income as follows:

2014 600,000

2015 1,500,000

2016 900,000

The cost recovery method is used for income tax purposes and the entity reported construction income on the tax return as follows:

2014 -

2015 -

2016 3,000,000

This is the only timing difference between pretax accounting income and taxable income.

The entity reported income before construction income and tax as follows:

2014 2,400,000

2015 3,600,000

2016 3,200,000

Required:

Problem 1: Prepare journal entries to record income tax and deferred tax for 2014, 2015 and 2016. The income tax rate is 30%.