Refer to the accounting change by Wertz Construction Company in BE22-1. Wertz has a profitsharing plan, which

Question:

Refer to the accounting change by Wertz Construction Company in BE22-1. Wertz has a profitsharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting policy that will be reported in the 2015 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers.

Data From BE22-1

Wertz Construction Company decided at the beginning of 2015 to change from the cost-recovery method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the cost-recovery method for tax purposes. For years prior to 2015, pretax income under the two methods was as follows: percentage-of-completion \($120\),000, and cost-recovery \($80\),000. The tax rate is 35%. Prepare Wertz’s 2015 journal entry to record the change in accounting policy.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Intermediate Accounting IFRS Edition

ISBN: 9781118443965

2nd Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Question Posted: