Wallace owns a construction company that builds both commercial and residential buildings. He contracts to build a residential building for $800,000 for which he is eligible to use the completed contract method of accounting. In the current year for regular income tax purposes, Wallace does not recognize any income on the contract. Under the percentage of completion method, the income recognized under the contract would have been $60,000. Wallace's AMT adjustment is:
A) $0.
B) $60,000 negative adjustment.
C) $60,000 positive adjustment.
D) $800,000 positive adjustment.
E) None of the above.

Question

Quizplus · Accepted Answer

The AMT adjustment under the completed contract method is the difference between the income recognized under the percentage of completion method and the income recognized under the method used for regular income tax purposes. In this case, the income recognized under the completed contract method is $60,000, which is higher than the income recognized under the regular income tax method (which is $0). Therefore, the AMT adjustment is a positive adjustment of $60,000.

Wallace Owns a Construction Company That Builds Both Commercial and Residential