A8 CHANGES IN ACCOUNTING POLICYIllustration: Cherokee Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting forlong-term construction contracts during 2015. For tax purposes, thecompany employs the cost-recovery method and will continue thisapproach in the future. (Hint: Adjust all tax consequences through theDeferred Tax Liability account.) The appropriate information related tothis change is as follows.20142015Pretax Income fromPercentage-of-Completion$780,000700,000Cost-Recovery$610,000480,000Difference$170,000220,000

A deferred tax liability is a tax obligation that arises from temporary differences between…

Answered: 2014 2015 Pretax Income from…

2014 2015 Pretax Income from Percentage-of-Completion $780,000 700,000 Cost-Recovery $610,000 480,000 Difference $170,000 220,000

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.6P

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Concept explainers

Contract Costing

Contract costing is about tracing particular costs related to a particular contract entered into with the customer. It is one of the forms of job order costing. It is useful in long-term contracts at the most. It is seen that substantial time is required for the completion of the contract which takes different accounting periods. Thus, it is very much helpful for recognizing the costs associated with it and accounting in their specific accounting periods.

Question

CHANGES IN ACCOUNTING POLICY
Illustration: Cherokee Construction Company changed from the cost-
recovery to the percentage-of-completion method of accounting for
long-term construction contracts during 2015. For tax purposes, the
company employs the cost-recovery method and will continue this
approach in the future. (Hint: Adjust all tax consequences through the
Deferred Tax Liability account.) The appropriate information related to
this change is as follows.
2014
2015
Pretax Income from
Percentage-of-Completion
$780,000
700,000
Cost-Recovery
$610,000
480,000
Difference
$170,000
220,000

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