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 effect is:
A)$0.
B)$60,000 negative adjustment.
C)$60,000 positive adjustment.
D)$800,000 positive adjustment.

Question

Quizplus · Accepted Answer

Under the completed contract method, income is not recognized until the contract is completed. Therefore, for regular income tax purposes, no income is recognized on the contract. However, for AMT purposes, income is recognized using the percentage of completion method. Therefore, the $60,000 income recognized under the percentage of completion method would be an adjustment necessary for AMT purposes. Since the income recognized under the percentage of completion method is positive, the adjustment would also be positive. Therefore, the correct choice is C) $60,000 positive adjustment.

Wallace Owns a Construction Company That Builds Both Commercial and Residential