(Change in Principle—Long-term Contracts) Cullen Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2008. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. The appropriate information related to this change is as follows.

Instructions

(a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2008?

(b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

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Pretax Income from Percentage-of-Completion Completed-Contract Difference 2007 2008 $980,000 900,000 $590,000 $290,000 480,000 420,000