On December 31, 2022, Dodd, Inc. appropriately changed the company's method of accounting for long-termconstruction contracts from the percentage-of-completion method to the cost recovery method for financial statementand income tax purposes. The change will result in a €2,300,000 decrease in the beginning Construction in Process atJanuary 1, 2022. Assume a 30% income tax rate. The cumulative effect of this accounting change on the Deferred TaxLiability account is Group of answer choices 1) a decrease of €690,000. 2) an increase of €690,000. 3) a decrease of€1,610,000. 4)an increase of €2,300,000.

Impact of the Change in Accounting MethodChanging from the percentage-of-completion method to the…

Answered: On December 31, 2022, Dodd, Inc.…

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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The whole question is as follows: At the beginning of 2016, Norris Company had a deferred tax liability of $6,600, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2015 and 2016, but in 2015 Congress enacted a 39% tax rate for 2017 and future years. Norris’s accounting records show the following pretax items of financial income for 2016: income from continuing operations, $120,300 (revenues of $351,500 and expenses of $231,200); gain on disposal of Division F, $24,000; loss from operations of discontinued Division F, $11,500; and prior period adjustment, $14,100, due to an error that understated revenue in 2015. All of these items are taxable; however, financial depreciation for 2016 on assets related to continuing operations exceeds tax depreciation by $4,600. Norris had a retained earnings balance of $161,300 on January 1, 2016, and declared and paid cash dividends of $32,800…

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