During 19X1 and 19X2, Company B used the percentage- of-completion method of accounting for construction. At the beginning of 19X3 it decides to switch to the completed-contract method (for both book and tax purposes). Under this method income before taxes would have been $100,000 lower for both years combined. (a) What type of change is this? (b) What type of approach does this change require: retroactive, or prospective? (c) Prepare the required entry for 19X3. Assume a tax rate for all years of 20%.

During 19X1 and 19X2, Company B used the percentage- of-completion method of accounting for construction. At the beginning of 19X3 it decides to switch to the completed-contract method (for both book and tax purposes). Under this method income before taxes would have been $100,000 lower for both years combined. (a) What type of change is this? (b) What type of approach does this change require: retroactive, or prospective? (c) Prepare the required entry for 19X3. Assume a tax rate for all years of 20%.

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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