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Change in Principle-Long-term Contracts

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Bryant Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2010. 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
2009 $980,000 $730,000 250,000
2010 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 2010? $

(b) What entry is necessary to adjust the accounting records for the change in accounting principle? (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

Description Debit Credit
$
$
$

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Solution Summary

Your tutorial explains the rule and then gives the responses requested.

Solution Preview

The rule is that this is a change in principle and should be reported retrospectively. That is, you go back and change prior years. So, the difference for the prior years will be booked to the ...

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