In 2022, Bergeron Construction Company Ltd. applied the completed-contract method of accounting for long-term construction contracts. However, in 2023, Bergeron discovered that the percentage-of-completion method should have been applied instead. For tax purposes, the company uses the completed-contract method and will continue this approach in the future. Bergeron follows ASPE, and will apply the percentage-of-completion method in 2023 and in the future. Bergeron applies the deferred taxes method of accounting for income taxes, and is subject to a tax rate of 30%. The appropriate information related to this change is as follows:

Instructions

a. Calculate the net income to be reported in 2023.

b. Provide the necessary entry(ies) in 2023 to adjust the accounting records with respect to the revenue recognition method applied in 2022.

c. Assume that, as at the end of 2023, just prior to recording the entry(ies) in part (b), Bergeron has a current ratio of 0.95. From the perspective of a creditor, discuss the effect of the entry(ies) in part (b) on Bergeron’s current ratio.

2022 2023 Pre-Tax Income Using: Percentage-of-Completion $820,000 700,000 Completed-Contract $620,000 480,000 Difference $200,000 220,000