Detmer Constuction Company Decided at the Beginning of 2012 to Change

question 19

Multiple Choice

Detmer Constuction Company decided at the beginning of 2012 to change from the cost-recovery method to the percentage-of-completion method for financial reporting purposes.The company will continue to use the cost-recovery method for tax purposes.For years prior to 2012, pretax income under the two methods was as follows: percentage-of-completion £144,000, and cost-recovery £114,000.The tax rate is 35%.Detmer has a profit-sharing plan, which pays all employees a bonus at year-end based on 1.5% of pretax income.What is the amount of the indirect effect of Detmer's change in accounting policy that will be reported in the 2012 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers?

• A)£2,160
• B)£1,710
• C)£ 450
• D)£ 954

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Definitions:

Interest Rate

The percentage of a loan that is applied as interest for the borrower, usually shown as a yearly rate.

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Restrictions set by a government on the quantity of a specific good that can be imported into a country.

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The value of a country's total exports minus the value of its total imports, which is a component of a country's GDP.

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