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    Change in Principle- Long-term Contracts

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    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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    Solution Preview

    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.