(Change in Principle—Long-Term Contracts) Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from Percentage-of-Completion Completed-Contract Difference 2020 $780,000 $590,000 $190,000 2021 700,000 480,000 220,000 Instructions a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021? b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

(Change in Principle—Long-Term Contracts) Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from Percentage-of-Completion Completed-Contract Difference 2020 $780,000 $590,000 $190,000 2021 700,000 480,000 220,000 Instructions a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021? b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter14: Taxes On The Financial Statements

Section: Chapter Questions

Problem 21CE

See similar textbooks

Instructions

a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021?

b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

Definition Definition Estimated future tax made while preparing accounts. Deferred tax is estimated based on past and present transactions from financial statements. It is not the actual tax that needs to be paid or is refundable from the revenue authority; it is an accounting entry. It is necessary to account for deferred tax due to difference between accounting profits and taxable profits.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

(Change in Principle—Long-Term Contracts) Pam Erickson Construction Company 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. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from: Percentage-of-Completion Completed-Contract Difference 2017 $780,000 $590,000 $190,000 2018 700,000 480,000 220,000 Instructions(a) Assuming that the tax rate is 35%, 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?
Tamarisk Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from: Percentage-of-Completion Completed-Contract Difference 2020 $727,000 $561,000 $166,000 2021 644,000 450,000 194,000 (a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2021? Net income $ (b) What entry is necessary to adjust the accounting records for the change in accounting principle? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and…
Larkspur Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from: Percentage-of-Completion Completed-Contract Difference 2020 $735,000 $564,000 $171,000 2021 651,000 440,000 211,000 (a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2021? Net income $Enter the net income in dollars (b) What entry is necessary to adjust the accounting records for the change in accounting principle? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is…
Cullumber Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. 2020 2021 Pretax Income from: Percentage-of-Completion Net income $ $727,000 644,000 Completed-Contract $561.000 450,000 Difference $166,000 194,000 (a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2021? (b) What entry is necessary to adjust the accounting records for the change in accounting principle? (Credit account titles ore automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts) Account Titles and…
Concord Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from: Percentage-of-Completion Completed-Contract Difference 2020 $747,000 $539,000 $208,000 2021 673,000 468,000 205,000 (a) Assuming that the tax rate is 30%, what is the amount of net income that would be reported in 2021?
What is the amount of net income after tax that Vignette Company should report for the year 2021? Vignette Construction Company changed from completed contract method to the percentage of completion method of accounting for long-term construction contracts during 2021. 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: Pre-tax Income from Percentage of Completion 2020 2,028,000 1,820,000 Completed Contract 1,534,000 1,248,000 2021 Income tax rate is 35%. What is the amount of net income after tax that Vignette Company should report for the year 2021? Your answer
Homer Alaska Inc. (HA) has used the completed-contract method to account for long-term construction contracts since its inception in 2018. In 2020, HA decided to change to the percentage-of-completion method because it is the industry norm. HA previously used the completed-contract method for income tax purposes and will continue to do so. Its income tax rate is 20%. The following lists HA’s income under each of the two income recognition methods: Year ended December 31 Income before taxes 2018 2019 2020 Completed-contract method (reported) $ 80,000 $ 120,000 $ 170,000 Percentage-of-completion method(calculated) $ 100,000 $ 150,000 $ 200,000 Required: Prepare the journal entry to reflect the accounting change in 2020, the year of the change.
Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. 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 from Percentage-of-Completion Completed-Contract Difference 2020 $880,000 $590,000 $290,000 2021 900,000 480,000 420,000 Instructions a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021? b. What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
Vignette Construction Company changed from completed contract method to the percentage of completion method of accounting for long-term construction contracts during 2021. 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: Pre-tax Income from 2020 2021 Percentage of Completion 2,028,000 1,820,000 Completed Contract 1,534,000 1,248,000 Income tax rate is 35%. What is the amount of net income after tax that Vignette Company should report for the year 2021?
Monty Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2026. For tax purposes, the company employs the cost-recovery method and will continue this approach in the future. (Hint. Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from Percentage-of-Completion 2025 $822,000 2026 750,000 Cost-Recovery $542,000 497,000 Difference $280,000 253,000
At the beginning of 2020, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2020, pretax income under the two methods was as follows: percentage-of-completion $120,000, and completed-contract $80,000. The tax rate is 20%. Prepare Wertz's 2020 journal entry to record the change in accounting principle.
At the beginning of 2020, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed- contract method for tax purposes. For years prior to 2020, pretax income under the two methods was as follows: percentage-of- completion $120,000, and completed-contract $80,000. The tax rate is 20%. Prepare Wertz's 2020 journal entry to record the change in accounting principle.