CHANGE IN ACCOUNTING PRINCIPLE EXERCISE DURING 2021, A CONSTRUCTION COMPANY THAT BEGAN OPERATIONS IN 2019 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 THRE YEARS APPEAR BELOW. ALSO, ASSUME THE FOLLOWING INFORMATION: • THE RETAINED EARNINGS BALANCE AS OF JANUARY 1, 2020 IS $2,000,000. • TAX RATE – 30% Completed-Contract Percentage-of-Completion 2019 $ 484000 $ 911000 2020 635000 960000 2021 710000 1060000 $1829000 $2931000 REQUIRED: 1. SCENARIO 1 – PREPARE JOURNAL ENTRY, INCOME STATEMENT AND RETAINED EARNINGS STATEMENT, ASSUMING COMPARATIVE FINANCIAL STATEMENTS ARE ISSUED. 2. SCENARIO 2 – PREPARE JOURNAL ENTRY, INCOME STATEMENT AND RETAINED EARNINGS STATEMENT, ASSUMING COMPARATIVE FINANCIAL STATEMENTS ARE NOT ISSUED.

CHANGE IN ACCOUNTING PRINCIPLE EXERCISE DURING 2021, A CONSTRUCTION COMPANY THAT BEGAN OPERATIONS IN 2019 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 THRE YEARS APPEAR BELOW. ALSO, ASSUME THE FOLLOWING INFORMATION: • THE RETAINED EARNINGS BALANCE AS OF JANUARY 1, 2020 IS $2,000,000. • TAX RATE – 30% Completed-Contract Percentage-of-Completion 2019 $ 484000 $ 911000 2020 635000 960000 2021 710000 1060000 $1829000 $2931000 REQUIRED: 1. SCENARIO 1 – PREPARE JOURNAL ENTRY, INCOME STATEMENT AND RETAINED EARNINGS STATEMENT, ASSUMING COMPARATIVE FINANCIAL STATEMENTS ARE ISSUED. 2. SCENARIO 2 – PREPARE JOURNAL ENTRY, INCOME STATEMENT AND RETAINED EARNINGS STATEMENT, ASSUMING COMPARATIVE FINANCIAL STATEMENTS ARE NOT ISSUED.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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