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Monty Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2026. For tax purposes, the company employs
Monty Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2026. 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.
Pretax Income from | ||||||
Percentage-of-Completion | Cost-Recovery | Difference | ||||
2025 | $822,000 | $542,000 | $280,000 | |||
2026 | 750,000 | 497,000 | 253,000 |
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