Intermediate Accounting, Student Value Edition (2nd Edition)
2nd Edition
ISBN: 9780134732145
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 21, Problem 21.2E
Change in Accounting Principle, Long-Term Construction Contracts. Arlen Technology Solutions, Inc. adopted the percentage-of-completion method when it began operations on January 1, 2016. The company elected to change to the completed-contract method on January 1, 2018, due to a change in the size of its computer network contracts. Net income under both methods for the first 3 years of the company’s operations is presented in the following table. Ignore income tax effects.
| Net Income | ||
| Year Ended | Percentage of Completion | Completed Contract |
| December 31, 2016 | $168,000 | $147,000 |
| December 31, 2017 | 112,000 | 98,000 |
| December 31, 2018 | 231,000 | 210,000 |
Required (Round to the nearest whole dollar)
- a. Prepare the
journal entry required to record the accounting change on January 1, 2018. - b. Prepare the footnote to disclose the change from the percentage-of-completion to the completed- contract method Designate the note as “Note A Change in Method of Accounting for Computer Network Contracts.”
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On January 1, 2024, Hampton's Construction, Inc. decided to change from the completed-contract method of accounting to the percentage-of-completion method. Hampton will continue to use the completed-contract method for income tax purposes. The following information is available for net income. The income tax rate for all years is 35%.Net Income
Year Ended
Percentage of Completion
Completed Contract
December 31, 2022
$145,000
$125,000
December 31, 2023
179,000
159,000
December 31, 2024
267,000
181,000
What is the journal entry to record the change in accounting principle on January 1, 2024?
Group of answer choices
Retained Earnings
55,900
Deferred Tax Asset
30,100
Construction in Progress86,000
Construction in Progress
40,000
Retained Earnings
40,000
No entry needed.
Construction in Progress
40,000
Deferred Tax Liability
14,000
Retained Earnings26,000
9) Matador began doing business on January 1, 2018, using the Percentage of Completion to
record construction revenues. During 2022, Matador changed to the Completed Contract
Method to record construction revenues to be consistent with industry practice. The
bookkeeper used the Completed Contract Method for recording construction revenues in
2022. Determine the adjustment to ICO. Matador has a corporate tax rate of 30%. The
company compiled the following comparative data.
2018
2019
2020
2021
2022
Percentage of
Completion
Method
$ 600,000
$545,500
$ 537,500
$512,500
$685,000
Completed
Contract
Method
$387,500
$322,500
$385,000
$395,000
$415,000
10) Using the information in Question 9, determine the cumulative effect adjustment to
Retained Earnings that Matador will recognize in the journal entry to record this
accounting change. Matador has a corporate tax rate of 30%.
11) Matador reports 3 years of comparative financial statements (2022, 2021, and 2020).
Using the information in…
(Change in Principle—Long-Term Contracts) Cullen Construction Company, which began operations in 2017, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2018. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. The appropriate information related to this change is as follows.
Pretax Income
Percentage-of-Completion
Completed-Contract
Difference
2017
$880,000
$590,000
$290,000
2018
900,000
480,000
420,000
Instructions(a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2018?(b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
Chapter 21 Solutions
Intermediate Accounting, Student Value Edition (2nd Edition)
Ch. 21 - Are accounting changes permitted in financial...Ch. 21 - How do firms report accounting changes under the...Ch. 21 - Prob. 21.3QCh. 21 - How do firms account for changes in accounting...Ch. 21 - Prob. 21.5QCh. 21 - Prob. 21.6QCh. 21 - Prob. 21.7QCh. 21 - Prob. 21.8QCh. 21 - Do accounting errors that self-correct within two...Ch. 21 - Does a firm need to correct an error that...
Ch. 21 - Prob. 21.1MCCh. 21 - Prob. 21.2MCCh. 21 - Prob. 21.3MCCh. 21 - Prob. 21.4MCCh. 21 - Prob. 21.5MCCh. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.6BECh. 21 - Prob. 21.7BECh. 21 - Prob. 21.8BECh. 21 - Prob. 21.9BECh. 21 - Prob. 21.10BECh. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Prob. 21.13BECh. 21 - Prob. 21.14BECh. 21 - Change in Accounting Principle, Inventory. Massi...Ch. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.3ECh. 21 - Change in Accounting Principle, Inventory. Winthur...Ch. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Error Analysis and Correction. Feinstein and...Ch. 21 - Prob. 21.8ECh. 21 - Prob. 21.9ECh. 21 - Prob. 21.10ECh. 21 - Change in Accounting Principle, Inventory. Second...Ch. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Change in Estimate, Inventory, Bad Debt Expense....Ch. 21 - Prob. 21.7PCh. 21 - Cases Judgment Case Judgment Case: Materiality and...Ch. 21 - Prob. 1FSCCh. 21 - Surfing the Standards: Change in Accounting...Ch. 21 - Prob. 1BCC
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