Sheridan Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method.The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. 2016 2017 2018Completed contract $415000 $279000 $143000Percentage-of-completion 715000 347000 235000Which of the following will be included in the journal entry made by Sheridan to record the income effect? Question 14 options: a) A credit to Retained Earnings for $208,200. b) A debit to Retained Earnings for $140,200. c) A credit to Retained Earnings for $140,200. d) A debit to Retained Earnings for $229,200

Percentage-of-completion = $347,000 Tax amount = $347000 x 40% = $138,800Amount credited to Retained Earnings = Percentage-of-completion - Tax amount = $347,000 - $138,800 = $208,200 Option a. A credit to Retained Earnings for $208,200 is correct answer.

Answered: Sheridan Inc., a real estate developing…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Sheridan Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method.

The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below.

	2016	2017	2018
Completed contract	$415000	$279000	$143000
Percentage-of-completion	715000	347000	235000

Which of the following will be included in the journal entry made by Sheridan to record the income effect?

Question 14 options:

a)	A credit to Retained Earnings for $208,200.

b)	A debit to Retained Earnings for $140,200.

c)	A credit to Retained Earnings for $140,200.

d)	A debit to Retained Earnings for $229,200

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