ng Garong Construction Company decided at the beginning of 2020 to change from the cost recovery method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the cost-recovery method for tax purposes. For years prior to 2020, pretax income under the two methods was as follows: percentage-of-completion £144,000, and cost-recovery £114,000. The tax rate is 35%. Kucing Garong has a profit-sharing plan, which pays all employees a bonus at year-end based on 1.5% of pretax income. What is the amount of the indirect effect of Kucing Garong’s change in accounting policy that will be reported in the 2020 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers?
Kucing Garong Construction Company decided at the beginning of 2020 to change from the cost recovery method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the cost-recovery method for tax purposes. For years prior to 2020, pretax income under the two methods was as follows: percentage-of-completion £144,000, and cost-recovery £114,000. The tax rate is 35%. Kucing Garong has a profit-sharing plan, which pays all employees a bonus at year-end based on 1.5% of pretax income. What is the amount of the indirect effect of Kucing Garong’s change in accounting policy that will be reported in the 2020 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers?
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