Question
At the beginning of 2020, Stellar Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company
At the beginning of 2020, Stellar Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2020, pretax income under the two methods was as follows: percentage-of-completion $ 114,200, and completed-contract $ 79,400. The tax rate is 40%. Stellar has a profit-sharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Stellars change in accounting principle that will be reported in the 2020 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers.
Indirect effect = |
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