Question
Answer the questions for each of the following independent situations on Accounting Changes and Errors. Pam Erickson Construction Company changed from the completed-contract method to
Answer the questions for each of the following independent situations on Accounting Changes and Errors.
Pam Erickson Construction Company changed from the completed-contract method to the percentage-of-completion method of accounting for long term construction contracts during 2020 for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes.
The pretax income under the two methods was as follows:
Year | Percentage of Completion | Completed Contract |
Prior to 2020 | $850,000 | $650,000 |
2020 | $720,000 | $500,000 |
2. Provide the type of accounting change or identify the error for this situation.
3. Provide the type of reporting approach for the adjustment for this situation.
4. Determine the amount of the effect this change would have on the opening balance of retained earnings in the 2020 financial. Assume a tax rate of 20%.
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