Question

Cullumber Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2021. In 2021, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. 2019 2020 2021 Completed contract $395000 $267000 $139000 Percentage-of-completion 695000 331000 215000 What amount will be debited to Construction in Process account, to record the change at beginning of 2021?

Answer 1

$217,800

Step-by-step explanation:

1.)Income as per new method (695,000 + 331,000) $1,025,000

Less Actual reported income until 2021 (395,000 + 267,000 ) $662,000

Balance $363,000

Hence:

40%*$363,000

=$145,200

$363,000 -145,200

=$217,800

Therefore amount will be debited to Construction in Process account, to record the change at beginning of 2021 will be $217,800