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Question - Sheffield Tar and Gravel Ltd. operates a road construction business. In its first year of operations, the company obtained a contract to construct a road for the municipality of Cochrane West, and it is estimated that the project will be completed over a three-year period starting in June 2020. Sheffield uses the percentage-of-completion method of recognizing revenue on its long-term construction contracts. For tax purposes, and in order to postpone the tax on such revenue for as long as possible, Sheffield uses the completed-contract method allowed by the CRA. For the second year of operations, Sheffield made progress on the construction of the road for the municipality. The account balances at December 31, 2020 and 2021, for the construction project and the accounting and tax balances of accounts related to the equipment used for construction follow:
2021
2020
Accounts Receivable
$107,000
$320,000
Asset/Liability (net of billings to date of $798,000 and $400,000)
115,000
100,000
Revenue from Long-Term Contracts
413,000
500,000
Construction Expenses
409,000
350,000
Equipment
1,100,000
Accumulated Depreciation-Equipment
453,000
178,000
Undepreciated Capital Cost
622,000
981,000
Sheffield's tax rate was 25% in 2020 and 2021. The enacted tax rate for 2022 and subsequent years was reduced to 20% on September 15, 2021. Income before income tax for the year ended December 31, 2020, was $195,000 and for December 31, 2021, was $127,000. Sheffield reports under IFRS.
Required - Prepare the journal entry to record the effect of the change in the enacted tax rate.
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