Change in Accounting for Construction Contracts Delta Company uses the completed

Question

Change in Accounting for Construction Contracts

Delta Company uses the completed-contract method of accounting for long-term construction contracts. Delta started business in 2011 and prepared the following income statements:

The company changes to the percentage-of-completion method at the beginning of 2013. It determines the construction revenue and expense amounts under the percentage-of-completion method to be as follows:

The other expenses remain unchanged for 2011 and 2012 and are $80,000 in 2013. Delta has not paid dividends on its 100,000 common shares outstanding. With the 2013 financial statements, the company issues comparative statements for the previous 2 years. Under the completed-contract method, construction revenue and construction expense would be $600,000 and $280,000, respectively, in 2013. Delta uses the percentage-of-completion method for income tax purposes.

1. Prepare the journal entry to reflect the change. If an amount box does not require an entry, leave it blank.

2. Prepare the comparative income statements for 2013, 2012, and 2011

Prepare the comparative Statements of Retained Earnings for 2013, 2012, and 2011. If an amount is zero, enter "0".

Construction revenue Construction expense Other expenses Income before income taxes Income tax expense (30% Net income Earnings per share 2011 $100,000 (40,000) (50,000) 10,000 (3,000 7,000 0.07 2012 300,000 (130,000) 100,000 0.0000 70,000 0.70

Explanation / Answer

Statement of revenue as per Percentage of completion Method Particulars 2011 2012 2013 Construction revenue 200000 420000 900000 Construction Expense -80000 -182000 -420000 Other expenses -50000 -70000 -80000 Income before Income taxes          70,000        1,68,000        4,00,000 Less : income tax expense (30%)        -21,000          -50,400       -1,20,000 Net Income          49,000        1,17,600        2,80,000 Earnings Per share               0.49                 1.18                 2.80 Statement of revenue as per completed- contract Method Particulars 2011 2012 2013 Construction revenue 100000 300000 600000 Construction Expense -40000 -130000 -280000 Other expenses -50000 -70000 -80000 Income before Income taxes          10,000        1,00,000        2,40,000 Less : income tax expense (30%)           -3,000          -30,000       -1,20,604 Net Income            7,000            70,000        1,19,396 Earnings Per share               0.07                 0.70                 1.19 Difference in net Income          42,000            47,600 =89600 The Net income is under recognised and hence to be recognised now bu adjusting to opening reserves 1 Construction Expense        Dr          89,600 To            Reseves            89,600 ( Being under recognised income is adjusted to reserves) 2 Comparitive income Statement as per Percentage of completion Method Particulars 2011 2012 2013 Construction revenue 200000 420000 900000 Construction Expense -80000 -182000 -420000 Other expenses -50000 -70000 -80000 Income before Income taxes          70,000        1,68,000        4,00,000 Less : income tax expense (30%)        -21,000          -50,400       -1,20,000 Net Income          49,000        1,17,600        2,80,000 Earnings Per share               0.49                 1.18                 2.80 Reserves & surplus          49,000        1,66,600        4,46,600

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.