Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)
2nd Edition
ISBN: 9780134833118
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 21, Problem 21.2E
Change in Accounting Principle, Long-Term Construction Contracts. Arlen Technology Solutions, Inc. adopted the percentage-of-completion method when it began operations on January 1, 2016. The company elected to change to the completed-contract method on January 1, 2018, due to a change in the size of its computer network contracts. Net income under both methods for the first 3 years of the company’s operations is presented in the following table. Ignore income tax effects.
| Net Income | ||
| Year Ended | Percentage of Completion | Completed Contract |
| December 31, 2016 | $168,000 | $147,000 |
| December 31, 2017 | 112,000 | 98,000 |
| December 31, 2018 | 231,000 | 210,000 |
Required (Round to the nearest whole dollar)
- a. Prepare the
journal entry required to record the accounting change on January 1, 2018. - b. Prepare the footnote to disclose the change from the percentage-of-completion to the completed- contract method Designate the note as “Note A Change in Method of Accounting for Computer Network Contracts.”
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Skysong IT Consulting changed from the recognition overtime (percentage-of-completion) to the completed-contract method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion $214,000, and completed-contract $156,000. The tax rate is 30%. Prepare Skysong IT’s 2017 journal entry to record the change in accounting principle.
On January 1, 2024, Hampton's Construction, Inc. decided to change from the completed-contract method of accounting to the percentage-of-completion method. Hampton will continue to use the completed-contract method for income tax purposes. The following information is available for net income. The income tax rate for all years is 35%.Net Income
Year Ended
Percentage of Completion
Completed Contract
December 31, 2022
$145,000
$125,000
December 31, 2023
179,000
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December 31, 2024
267,000
181,000
What is the journal entry to record the change in accounting principle on January 1, 2024?
Group of answer choices
Retained Earnings
55,900
Deferred Tax Asset
30,100
Construction in Progress86,000
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40,000
No entry needed.
Construction in Progress
40,000
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Retained Earnings26,000
9) Matador began doing business on January 1, 2018, using the Percentage of Completion to
record construction revenues. During 2022, Matador changed to the Completed Contract
Method to record construction revenues to be consistent with industry practice. The
bookkeeper used the Completed Contract Method for recording construction revenues in
2022. Determine the adjustment to ICO. Matador has a corporate tax rate of 30%. The
company compiled the following comparative data.
2018
2019
2020
2021
2022
Percentage of
Completion
Method
$ 600,000
$545,500
$ 537,500
$512,500
$685,000
Completed
Contract
Method
$387,500
$322,500
$385,000
$395,000
$415,000
10) Using the information in Question 9, determine the cumulative effect adjustment to
Retained Earnings that Matador will recognize in the journal entry to record this
accounting change. Matador has a corporate tax rate of 30%.
11) Matador reports 3 years of comparative financial statements (2022, 2021, and 2020).
Using the information in…
Chapter 21 Solutions
Intermediate Accounting, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (2nd Edition)
Ch. 21 - Are accounting changes permitted in financial...Ch. 21 - How do firms report accounting changes under the...Ch. 21 - Prob. 21.3QCh. 21 - How do firms account for changes in accounting...Ch. 21 - Prob. 21.5QCh. 21 - Prob. 21.6QCh. 21 - Prob. 21.7QCh. 21 - Prob. 21.8QCh. 21 - Do accounting errors that self-correct within two...Ch. 21 - Does a firm need to correct an error that...
Ch. 21 - Prob. 21.1MCCh. 21 - Prob. 21.2MCCh. 21 - Prob. 21.3MCCh. 21 - Prob. 21.4MCCh. 21 - Prob. 21.5MCCh. 21 - Prob. 21.1BECh. 21 - Prob. 21.2BECh. 21 - Prob. 21.3BECh. 21 - Prob. 21.4BECh. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.6BECh. 21 - Prob. 21.7BECh. 21 - Prob. 21.8BECh. 21 - Prob. 21.9BECh. 21 - Prob. 21.10BECh. 21 - Prob. 21.11BECh. 21 - Prob. 21.12BECh. 21 - Prob. 21.13BECh. 21 - Prob. 21.14BECh. 21 - Change in Accounting Principle, Inventory. Massi...Ch. 21 - Change in Accounting Principle, Long-Term...Ch. 21 - Prob. 21.3ECh. 21 - Change in Accounting Principle, Inventory. Winthur...Ch. 21 - Prob. 21.5ECh. 21 - Prob. 21.6ECh. 21 - Error Analysis and Correction. Feinstein and...Ch. 21 - Prob. 21.8ECh. 21 - Prob. 21.9ECh. 21 - Prob. 21.10ECh. 21 - Change in Accounting Principle, Inventory. Second...Ch. 21 - Prob. 21.2PCh. 21 - Prob. 21.3PCh. 21 - Prob. 21.4PCh. 21 - Prob. 21.5PCh. 21 - Change in Estimate, Inventory, Bad Debt Expense....Ch. 21 - Prob. 21.7PCh. 21 - Cases Judgment Case Judgment Case: Materiality and...Ch. 21 - Prob. 1FSCCh. 21 - Surfing the Standards: Change in Accounting...Ch. 21 - Prob. 1BCC
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