Carla Vista Inc., a real estate developing company, was accounting for its long-

Question

Carla Vista Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, 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.

What amount will be debited to Construction in Process account, to record the change at beginning of 2018?

2016 2017 2018 Completed contract $485000 $321000 $157000 Percentage-of-completion 785000 403000 305000

Explanation / Answer

Answer is option D

Amount required to debited to Construction in Process account, to record the change at beginning of 2018=Income should have been recorded as per percentage of completion method for 2016 & 2017 (-) Income actually recorded as per completed contract method for 2016 & 2017
=($785000+$403000)-($485000+$321000)=$382000

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