Wallace owns a construction company that builds both commercial and residential buildings.He contracts to build a residential building for $800,000 for which he is eligible to use the completed contract method of accounting.In the current year for regular income tax purposes,Wallace does not recognize any income on the contract.Under the percentage of completion method,the income recognized under the contract would have been $60,000.Wallace's AMT adjustment is:
A)$0.
B)$60,000 negative adjustment.
C)$60,000 positive adjustment.
D)$800,000 positive adjustment.
E)None of the above.

Question

Quizplus · Accepted Answer

The AMT adjustment for long-term contracts is the difference between the income recognized under the percentage of completion (POC) method and the income recognized under the completed contract (CC) method. In this case, since Wallace is eligible to use the CC method for regular income tax purposes, he does not recognize any income on the contract. However, if he were to use the POC method, he would recognize $60,000 of income in the current year. Therefore, the AMT adjustment is $60,000 positive adjustment.

Wallace Owns a Construction Company That Builds Both Commercial and Residential