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 complete 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

Under the completed contract method, income is only recognized when the entire contract is completed. Therefore, no income is recognized for regular income tax purposes in the current year. However, under the percentage of completion method, income is recognized based on the percentage of the project that is complete.

The AMT adjustment is calculated as the difference between the income recognized under the percentage of completion method and the income recognized for regular income tax purposes. In this case, the income recognized under the percentage of completion method is $60,000, and the income recognized for regular income tax purposes is $0. Therefore, the AMT adjustment is a positive $60,000.

Wallace Owns a Construction Company That Builds Both Commercial and Residential