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 three years appear below: Completed-Contract Percentage-of-Completion 2019 $ 385000 $ 790000 2020 525000 850000 2021 600000 950000 $1510000 $2590000 Assuming an income tax rate of 30% for all years and that comparative statements are not issued, the effect of this accounting change on prior periods should be reported by a increase of $511000 on the 2021 income statement. $755000 on the 2021 retained earnings statement. $511000 on the 2021 retained earnings statement. $755000 on the 2021 income statement.
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 three years appear below: Completed-Contract Percentage-of-Completion 2019 $ 385000 $ 790000 2020 525000 850000 2021 600000 950000 $1510000 $2590000 Assuming an income tax rate of 30% for all years and that comparative statements are not issued, the effect of this accounting change on prior periods should be reported by a increase of $511000 on the 2021 income statement. $755000 on the 2021 retained earnings statement. $511000 on the 2021 retained earnings statement. $755000 on the 2021 income statement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 three years appear below:
| Completed-Contract | Percentage-of-Completion | |||||||
| 2019 | $ 385000 | $ 790000 | ||||||
| 2020 | 525000 | 850000 | ||||||
| 2021 | 600000 | 950000 | ||||||
| $1510000 | $2590000 |
Assuming an income tax rate of 30% for all years and that comparative statements are not issued, the effect of this accounting change on prior periods should be reported by a increase of
$511000 on the 2021 income statement.
$755000 on the 2021 retained earnings statement.
$511000 on the 2021 retained earnings statement.
$755000 on the 2021 income statement.
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