Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Chapter 21, Problem 21.4BE
To determine
To prepare: The
Given information:
Tax rate is 35%.
Cumulative income would have been lower by $300,000 if completed contract method was used.
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Widjaja Company is accounting for a long-term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company.
Instructions
a. What theoretical justification is there for Widjaja Company's use of the percentage-of-completion method?
b. How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements.
c. How would the income recognized in the second year of the 4-year contract be determined using the cost-to-cost method of determining percentage of completion?
d. What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss.
If at the end of the second year of a 4-year contract, a company determines total estimated costs are going to exceed the contract price,
it immediately recognizes the total estimated loss.
it recognizes the total estimated loss in the year of completion if it is using the point-in-time method.
it spreads the estimated loss over the remaining two years if it is using the recognizing-revenue-over-time method.
it treats the estimated loss as a change in accounting estimate.
Carrboro Construction Company elected to change its method of accounting from the
percentage-of-completion method to the completed-contract method. Prior-years income
(cumulative) would have been $310,000 lower if Carrboro had always used the completed contract
method. The company is subject to a 35% tax rate. Prepare the journal entry to record the change
in method. (Record debits first, then credits. Exclude explanations from any journal entries.)
Account
Current Year
Chapter 21 Solutions
Intermediate Accounting
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 - Prob. 21.1ECh. 21 - Prob. 21.2ECh. 21 - Prob. 21.3ECh. 21 - Prob. 21.4ECh. 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 - Prob. 21.1PCh. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Prob. 21.6PCh. 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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- Crane Corporation uses the completed-contract method. At the end of the first year of a $9023000 contract, the following information is available: Costs to date: Estimated costs to complete Progress billings during the year Cash collected during the year $2021000 O $991000 O $247750 O $275000 O $0 6011000 1811000 1536000 In the first year, Crane should recognize gross profit of Crane Corporation uses the co information is available: Costs to date: Estimated costs to complete Progress billings during the y Cash collected during the yea In the first voor Crano should r Snipping Tool Screenshot copied t Select here to markarrow_forward(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?arrow_forwardNathan Construction Inc. has consistently used the percentage-of-completion method of recognizing income. In 2020, Nathan started work on a P6,750,000 fixed price construction contract. The accounting records disclosed the following data for the year ended December 31, 2020: P 2,092,500 4,882,500 2,475,000 1,575,000 Costs incurred Estimated cost to complete Progress billings Collections How much loss should Nathan have recognized in 2020?arrow_forward
- Creative Construction Company has consistently used the percentage of completion method of recognizing revenue. During 2019, Creative started work on a P15M fixed price construction contract. The accounting records disclosed the following data for the year ended December 31, 2019. Contract Costs incurred P4,650,000 Estimated costs to complete P10,850,000 Progress Billings 15,500,000 Collections P3,500,000 15. The loss that Creative Construction Company should have recognized in 2019 is a. P150,000 b. P500,000 C. P350,000 d P1,150,000arrow_forwardShannon Corporation began operations on January 1, 2019. Financial statements for the years ended December 31, 2019 and 2020, contained the following errors: In addition, on December 31, 2020, fully depreciated machinery was sold for 10,800 cash, but the sale was not recorded until 2021. There were no other errors during 2019 or 2020, and no corrections have been made for any of the errors. Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on the amount of working capital (current assets minus current liabilities) at December 31, 2020? a. working capital overstated by 4,200 b. working capital understated by 5,800 c. working capital understated by 6,000 d. working capital understated by 9,800arrow_forward1. During 2020, Bay Construction started a new construction job with a contract price of $750 million. Bay has a 12/31 fiscal year end. Bay has determined that the contract does not qualify for revenue recognition over time. The contract was completed on 12/31/22 with the following information ($ in millions): Costs incurred in the period (paid in cash) Estimated costs to complete at 12/31 Billings on contract in the period Cash collected in the period 2020 180.0 2021 2022 432.0 150.0 540.0 153.0 -0- 150 350 250 200 400 150 What is the amount of gross profit (loss) on the contract that Bay would recognize on the Income Statement in 2020, 2021 and 2022? You must show supporting work (calculations/explanations) to receive credit for your answers. Gross Profit (Loss) 2020 2021 2022arrow_forward
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