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During 2014, AM Construction Company changed from the completed-contract method to the percentage-of- completion method for accounting purposes but not for tax purposes. Gross profit
During 2014, AM Construction Company changed from the completed-contract method to the percentage-of- completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below: Completed-Contract Percentage-of-Completion 2012 $ 400,000 $ 800,000 2013 600,000 900,000 2014 700.000 1.000.000 $1 700 000 $2 700 000 Assume an income tax rate of 35% for all years. a. Show computations to determine the adjustment needed in 2014 to the beginning balance of retained earnings to account for the effect of this accounting change on prior periods. b. Prepare a journal entry needed in 2014 to adjust the accounting records for this change in accounting principle
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