Since Goode Construction Company was formed in 2021, it has used the completed-contract method for financial reporting, but at the beginning of 2023, it changes to the percentage-of-completion method. Goode previously had reported the following: 2022 2021 Sales Cost of goods sold $800,000 $300,000 (550,000) (200,000) Gross profit $250,000 $100,000 Operating expenses (27,000) (15,000) Income before taxes $223,000 $85,000 Income tax expense (35%) (78,050) (29,750) Net income $144,950 $55,250 Analysis of the accounting records discloses that the company earned the following gross profit on each of its projects based on the percentage of completion method: 2023 Project A Project B Project C $400,000 ccounting II 2022 2021 $100,000 120,000 $125,000 75,000 In 2023, Goode would have reported sales and cost of completed contracts of $820,000 and $350,000, respectively, under the completed-contract method. In addition, the company reported $120,000 in operating expenses for 2023. Goode has a simple capital structure with 10,000 shares of common stock outstanding. It paid no dividends and uses the percentage of completion method for income taxes. Required: 1. Complete the journal entry to reflect the change in method at the beginning of 2020. Date Description Construction in Progress Retained Earnings Deferred Taxes To record change in accounting method Debit Credit 2. The company prepares comparative financial statements, prepare the income statement (including EPS starting with gross profit) and statement of retained earnings. a. Assume three year comparative statements (2023, 2022, and 2021) b. Assume two year comparative statements (2023 and 2022)
Since Goode Construction Company was formed in 2021, it has used the completed-contract method for financial reporting, but at the beginning of 2023, it changes to the percentage-of-completion method. Goode previously had reported the following: 2022 2021 Sales Cost of goods sold $800,000 $300,000 (550,000) (200,000) Gross profit $250,000 $100,000 Operating expenses (27,000) (15,000) Income before taxes $223,000 $85,000 Income tax expense (35%) (78,050) (29,750) Net income $144,950 $55,250 Analysis of the accounting records discloses that the company earned the following gross profit on each of its projects based on the percentage of completion method: 2023 Project A Project B Project C $400,000 ccounting II 2022 2021 $100,000 120,000 $125,000 75,000 In 2023, Goode would have reported sales and cost of completed contracts of $820,000 and $350,000, respectively, under the completed-contract method. In addition, the company reported $120,000 in operating expenses for 2023. Goode has a simple capital structure with 10,000 shares of common stock outstanding. It paid no dividends and uses the percentage of completion method for income taxes. Required: 1. Complete the journal entry to reflect the change in method at the beginning of 2020. Date Description Construction in Progress Retained Earnings Deferred Taxes To record change in accounting method Debit Credit 2. The company prepares comparative financial statements, prepare the income statement (including EPS starting with gross profit) and statement of retained earnings. a. Assume three year comparative statements (2023, 2022, and 2021) b. Assume two year comparative statements (2023 and 2022)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Since Goode Construction Company was formed in 2021, it has used the completed-contract method for
financial reporting, but at the beginning of 2023, it changes to the percentage-of-completion method. Goode
previously had reported the following:
2022
2021
Sales
Cost of goods sold
$800,000
$300,000
(550,000)
(200,000)
Gross profit
$250,000
$100,000
Operating expenses
(27,000)
(15,000)
Income before taxes
$223,000
$85,000
Income tax expense (35%)
(78,050)
(29,750)
Net income
$144,950
$55,250
Analysis of the accounting records discloses that the company earned the following gross profit on each of its
projects based on the percentage of completion method:
2023
Project A
Project B
Project C
$400,000
ccounting II
2022
2021
$100,000
120,000
$125,000
75,000
In 2023, Goode would have reported sales and cost of completed contracts of $820,000 and $350,000,
respectively, under the completed-contract method. In addition, the company reported $120,000 in operating
expenses for 2023. Goode has a simple capital structure with 10,000 shares of common stock outstanding. It
paid no dividends and uses the percentage of completion method for income taxes.
Required:
1. Complete the journal entry to reflect the change in method at the beginning of 2020.
Date
Description
Construction in Progress
Retained Earnings
Deferred Taxes
To record change in accounting method
Debit
Credit
2. The company prepares comparative financial statements, prepare the income statement (including EPS
starting with gross profit) and statement of retained earnings.
a. Assume three year comparative statements (2023, 2022, and 2021)
b. Assume two year comparative statements (2023 and 2022)
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