Question
Cherokee Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2015. For tax purposes, the company employs
Cherokee Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2015. For tax purposes, the company employs the cost-recovery method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.
Instructions: (assume a tax rate of 35%)
What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
2014 2015 Pretax Income from Percentage-of-Completion $780,000 700,000 Cost-Recovery $610,000 480,000 Difference $170,000 220,000Step by Step Solution
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