At the beginning of 2024, a construction company that began operations in 2022 changed from the completed-contract method to thepercentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for thepast three years appear below:202220232024Completed-Contract$565000725000800000$2090000Percentage-of-Completion$101000010500001150000$3210000The company reports two years of comparative statements. Assuming an income tax rate of 20% for all years, the effect of thisaccounting change on prior periods after taxes should be reported by a credit ofO $616000 on the 2024 income statement.O $356000 on the 2023 retained earnings statement.O $896000 on the 2023 income statement.O $896000 on the 2024 retained earnings statement.

When a corporation changes its accounting system, the cumulative impact on previous periods must be…

At the beginning of 2024, a construction company that began operations in 202 percentage-of-completion method for accounting purposes but not for tax purp past three years appear below: 2022 2023 2024 Completed-Contract $565000 725000 800000 Percentage-of-Completion $1010000 1050000 1150000

At the beginning of 2024, a construction company that began operations in 202 percentage-of-completion method for accounting purposes but not for tax purp past three years appear below: 2022 2023 2024 Completed-Contract $565000 725000 800000 Percentage-of-Completion $1010000 1050000 1150000

SWFT Corp Partner Estates Trusts

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ISBN:9780357161548

Author:Raabe

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Chapter14: Taxes On The Financial Statements

Section: Chapter Questions

Problem 4BCRQ

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

At the beginning of 2024, a construction company that began operations in 2022 changed from the completed-contract method to the
percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the
past three years appear below:
2022
2023
2024
Completed-Contract
$565000
725000
800000
$2090000
Percentage-of-Completion
$1010000
1050000
1150000
$3210000
The company reports two years of comparative statements. Assuming an income tax rate of 20% for all years, the effect of this
accounting change on prior periods after taxes should be reported by a credit of
O $616000 on the 2024 income statement.
O $356000 on the 2023 retained earnings statement.
O $896000 on the 2023 income statement.
O $896000 on the 2024 retained earnings statement.

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