During 2020, a construction company 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: Completed-Contract Percentage-of-Completion 2018 ₱ 475,000 ₱ 700,000 2019 625,000 950,000 2020 700,000 1,050,000 Total ₱1,800,000 ₱2,700,000 Assuming an income tax rate of 40% for all years, the effect of this accounting change on prior periods should be reported by a credit of a. ₱540,000 on the 2020 income statement. b. ₱330,000 on the 2020 income statement. c. ₱540,000 on the 2020 retained earnings statement. d. ₱330,000 on the 2020 retained earnings statement.
During 2020, a construction company 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:
Completed-Contract Percentage-of-Completion
2018 ₱ 475,000 ₱ 700,000
2019 625,000 950,000
2020 700,000 1,050,000
Total ₱1,800,000 ₱2,700,000
Assuming an income tax rate of 40% for all years, the effect of this accounting change on prior periods should be reported by a credit of
a. ₱540,000 on the 2020 income statement.
b. ₱330,000 on the 2020 income statement.
c. ₱540,000 on the 2020
d. ₱330,000 on the 2020 retained earnings statement.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
