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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 2008. 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

2007 $780,000 $590,000 $190,000
2008 700,000 480,000 220,000

(a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in

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

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Question A
Pretax Income 700,000
Less: Income tax 245,000
Net ...

Solution Summary

The solution examines the change in principle for long-term contracts. The amount of net income that would be reported is determined.