Question

38 At the beginning of 2019, Bayside Co. changed from the recognition overtime (percentage-of-completion) to the completed-contract method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2019, pretax income under the two methods was as follows: percentage-of-completion $278,000, and completed-contract $231,000. The tax rate is 30%.
In preparing its 2019 journal entry to record the change in accounting principle, Construction in Process would be credited by what amount?

Select one:
a. $14,100
b. $32,900
c. $47,000
d. $231,000

39.At the beginning of 2019, Bayside Co. changed from the recognition overtime (percentage-of-completion) to the completed-contract method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2019, pretax income under the two methods was as follows: percentage-of-completion $278,000, and completed-contract $231,000. The tax rate is 30%.
In preparing its 2019 journal entry to record the change in accounting principle, Deferred Tax Liability would be debited by what amount?
Select one:
a. $14,100
b. $231,000
c. $47,000
d. $32,900

Answer 1

Solution

Year	Percentage of Completion (A)	Completed Contract (B)	Difference (C = A - B)	Tax effect (D = C X 30%)	Income Effect (net of tax) (E = C - D)
Prior to 2019	278,000	231,000	47,000	14,100	32,900

Journal entry to record the change in accounting principle

Beginning of 2019

Date	Particulars	Debit	Credit
	Construction in Process	47,000
	Deferred Tax Liability		14,100
	Retained Earnings		32,900

Note:

Retrospective approach is used for reporting change.

answered by: anonymous