Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. 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 is as follows.   Pretax Income from   Percentage-of-Completion Completed-Contract Difference 2020 $880,000 $590,000 $290,000 2021   900,000   480,000   420,000 Instructions a.    Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021? b.    What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

Question

Cullen Construction Company, which began operations in 2020, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. 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 is as follows.

 
Pretax Income from
 
Percentage-of-Completion
Completed-Contract
Difference
2020
$880,000
$590,000
$290,000
2021
  900,000
  480,000
  420,000

Instructions

a.    Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2021?

b.    What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

 

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