Exercise 22-6 Swi y Construction Company, which began operations n 2017, changed

Question

Exercise 22-6 Swi y Construction Company, which began operations n 2017, changed rom the completed contract to the percentage o completion method of accounting or long-term construction contracts during 2018. For tax purposes company employs the c ? 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 $598,000 197,000 367,000 2017 $795,000 2018 891.000 524,000 (a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2018? Net income (b) What entry is necessary to adjust the accounting records for the change in accounting principle? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit

Explanation / Answer

a) The net income to be reported in 2018, using the retrospective approach, would be computed as follows

Income before income tax $891,000

Income tax(35%*$891000) ($311,850)

Net income $579,150

b) Construction in process $197000

Deferred Tax liability($197000*35%) $68950

Retained earnings ($197000*65%) $128050   

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