Pam Erickson Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for longterm construction

Question:

Pam Erickson Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for longterm construction contracts during 2026. For tax purposes, the company employs the cost-recovery method and will continue this approach in the future.

Instructions

a. Assuming that the tax rate is 20%, what is the amount of net income that would be reported in 2026?

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

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Related Book For answer-question

Intermediate Accounting

ISBN: 9781119790976

18th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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Question Posted: Jun 24, 2023 11:13 PM

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Pam Erickson Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for longterm construction

Question:

2025 2026 Pretax Income from Percentage-of-Completion $780,000 700,000 Cost-Recovery $590,000 480,000 Difference $190,000 220,000

Step by Step Answer:

a The net income to be reported in 2026 using the retrospec...View the full answer

Intermediate Accounting

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