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At the beginning of 2025, Pronghorn Construction Company changed from the cost-recovery method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company
At the beginning of 2025, Pronghorn Construction Company changed from the cost-recovery method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the costrecovery method for tax purposes. For years prior to 2025 , pretax income under the two methods was as follows: percentage-of-completion $114,200, and cost-recovery $78,200. The tax rate is 40%. Pronghorn has a profit-sharing plan, which pays all employees a bonus at year-end based on 2% of pretax income. Compute the indirect effect of Pronghorn's change in accounting principle that will be reported in the 2025 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers. Indirect effect
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