Porco Construction Company initiated operations on January 1, 2020. At that time, Porco’s management used the percentage-of-completion method to account for its contracts. The estimates used indicated that the contracts would generate income equally each year; the projects were 4 years in duration and were 25% complete each year. On January 1, 2023, the company switched to the completed-contract method to better reflect the company’s shift in contract length. Contracts are shorter in duration and are not as material in terms of total value. Relevant income information for both methods follows. Porco is subject to a 40% income tax rate. Assume that Porco can use the percentage-of-completion method for tax purposes and on the company’s tax returns after the change for financial reporting purposes.

Required
a. Compute the cumulative effect after tax.
b. Prepare the journal entry to record the change in method effective January 1, 2023.
c. Prepare the accounting change footnote in the financial statements for the year of the change.

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Year 2020 2021 2022 2023 Percentage-of- Completion Method (Old Method) $88,560 88,560 88,560 88,560 Completed-Contract Method (New Method) $ 0 0 0 354,240