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31 October, 19:12

Blossom Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2021. In 2021, 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.

2019 2020 2021

Completed contract $300,000 $200,000 $100,000

Percentage-of-completion 500,000 250,000 180,000

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  1. 31 October, 19:22
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    Check the explanation

    Explanation:

    Percentage-of-completion (2013 + 2014) - Completed contract (2013 + 2014) * 1 -.40

    = $500,000 + $ 250,000 - $300,000 + $200,000 * 0.60

    =$750,000-$500,000 * 0.60

    =$250,000 * 0.60

    =$150,000 to record the income effect
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