Question: During 2014, AM Construction Company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures

During 2014, AM Construction Company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below:

Completed-Contract Percentage-of-Completion

2012 $ 400,000 $ 800,000

2013 600,000 900,000

2014 700,000 1,000,000

$1,700,000 $2,700,000

Assume an income tax rate of 35% for all years.

Show computations to determine the adjustment needed in 2014 to the beginning balance of retained earnings to account for the effect of this accounting change on prior periods.

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