Refer to the accounting change by Wertz Construction in BE22.1. Wertz has a profit sharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting policy that will be reported in the 2022 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers.

BE22.1

Wertz Construction decided at the beginning of 2022 to change from the costrecovery 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 2022, pretax income under the two methods was as follows: percentage-of-completion $120,000, and cost-recovery $80,000. The tax rate is 35%. Prepare Wertz’s 2022 journal entry to record the change in accounting policy.