Larkspur Construction Company 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. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from: Percentage-of-Completion Completed-Contract Difference 2020 $735,000 $564,000 $171,000 2021 651,000 440,000 211,000 (a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2021? Net income $Enter the net income in dollars (b) What entry is necessary to adjust the accounting records for the change in accounting principle? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount

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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Larkspur Construction Company 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. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.

	Pretax Income from:
	Percentage-of-Completion	Completed-Contract	Difference
2020	$735,000	$564,000	$171,000
2021	651,000	440,000	211,000

(a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2021?

Net income

$Enter the net income in dollars

(b) What entry is necessary to adjust the accounting records for the change in accounting principle? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
Enter an account title	Enter a debit amount	Enter a credit amount
Enter an account title	Enter a debit amount	Enter a credit amount
Enter an account title	Enter a debit amount	Enter a credit amount

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