Chapter 22 Homework Cherokee Construction Company changed from the completed contract to the percentage of completion method of accounting for long-term construction contracts during 20x1. For tax purposes, the company employs the completed.contract method and will continue this approach in the future. The appropriate information related to this change for construction contracts in progress is as follows. Pretax Income from: Percentage-of- Completed Contract Completion Difference 20x0 ............... $610,000 $170,000 ...........$780,000 . 220,000 480,000 ... 700,000 20x1. Instructions (a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 20x1? (b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle? 22-2 Whitman Company began operations on January 1, 20x1, and uses the average cost method of pricing inventory Management is contemplating a change in inventory methods for 20x4. The following information is available for the years 20x1-20x3. Net Income Computed Using Average Cost Method FIFO Method LIFO Method 20x1 $16,000 $19,000 $12,000 20x2. 18,000 21,000 14,000 20x3 ...... 20,000 25,000 17,000 Instructions (Ignore all tax effects.) (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 20x4. (b) Determine net income to be reported for 20x1, 20x2, and 20x3, after giving effect to the change in accounting principle. (c) Assume Whitman Company used the LIFO method instead of the average cost method during the years 20x1-20x3. In 20x4, Whitman changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. 22-3