A Company Changes from Percentage-Of-Completion to Cost-Recovery, Which Is the Method

question 45

Multiple Choice

A company changes from percentage-of-completion to cost-recovery, which is the method used for tax purposes.The entry to record this change should include a

• A)debit to Construction in Process.
• B)debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
• C)debit to Retained Earnings in the amount of the difference on prior years, net of tax.
• D)credit to Deferred Tax Liability.

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Definitions:

Purchasing Cycle

The sequence of steps or processes involved in the acquisition of goods or services, from the identification of a need, through the procurement process, to the payment of the invoice.

Purchase Order

A formal document issued by a buyer to a seller, detailing the products or services ordered and the agreed-upon prices.

Inventory Account

An account in the general ledger that tracks the value of a company's products that are intended for sale.

Time Sheet

A document or tool used to track the number of hours worked by an employee during a specific period.