During 2015, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below: Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of
A) $660,000 on the 2015 income statement.
B) $450,000 on the 2015 income statement.
C) $660,000 on the 2015 retained earnings statement.
D) $450,000 on the 2015 retained earnings statement.

Question

During 2015, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below:  Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of
A) $660,000 on the 2015 income statement. 
B) $450,000 on the 2015 income statement. 
C) $660,000 on the 2015 retained earnings statement. 
D) $450,000 on the 2015 retained earnings statement.

Quizplus · Accepted Answer

The Answer of During 2015, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below:  Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of
A) $660,000 on the 2015 income statement. 
B) $450,000 on the 2015 income statement. 
C) $660,000 on the 2015 retained earnings statement. 
D) $450,000 on the 2015 retained earnings statement.

During 2015, a Construction Company Changed from the Completed-Contract Method