Cherokee Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2022. For tax purposes, the company employs the cost recovery method and will continue this approach in the future. The appropriate information related to this change is as follows.

Instructions

a. Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2022?

b. What entry or entries is/are necessary to adjust the accounting records for the change in accounting policy?

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Pretax Income from Percentage-of-Completion Cost-Recovery Difference Prior Years $780,000 $610,000 $170,000 2022 700,000 480,000 220,000