Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. The appropriate information related to this change is as follows. Pretax Income from Percentage-of-Completion Completed-Contract Difference 2020 $880,000 $590,000 $290,000 2021 900,000 480,000 420,000 Instructions a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021? b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. The appropriate information related to this change is as follows. Pretax Income from Percentage-of-Completion Completed-Contract Difference 2020 $880,000 $590,000 $290,000 2021 900,000 480,000 420,000 Instructions a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021? b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. The appropriate information related to this change is as follows.
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|
Pretax Income from
|
||
|
|
Percentage-of-Completion
|
Completed-Contract
|
Difference
|
|
2020
|
$880,000
|
$590,000
|
$290,000
|
|
2021
|
900,000
|
480,000
|
420,000
|
Instructions
a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021?
b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
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