1)Using the below information fill in the answers to parts (a), (b) and (c) for a change in accounting principle

Partial Income Statement using Completed- contract-method for its long-term construction contracts:

2015

2016

2017

Income before taxes

400,000

160,000

190,000

Income tax expense (40%)

160,000

64,000

76,000

Net Income

240,000

96,000

114,000

Partial Income Statement using Cost-to-Cost-method for its long-term construction contracts:

2015

2016

2017

Income before taxes

600,000

180,000

200,000

Income tax expense (40%)

240,000

72,000

80,000

Net Income

360,000

108,000

120,000

a)The company wants to change to the Cost-to-Cost-method beginning in 2017.Prepare the comparative Income Statement for 2016 and 2017 below:

2016

2017

Income before taxes

Income tax expense (40%)

Net Income

b)Prepare the journal entry at the beginning of 2016 to adjust retained earnings (as this is the BEGINNING of the earliest period presented):

Debit

Credit

c)Assume a retained earnings balance of $1,360,000 as of the beginning of 2015 and NO dividends were paid in any of the years.Prepare the Statement of Changes in Retained Earnings for 2016 and 2017 using the following information for 2015:

2015

Beginning retained earnings

1,360,000

+ Net Income

240,000

Ending retained earnings

1,600,000

2016

2017

Retained Earnings, January 1

Adjustment for Cumulative Effect on Prior Years Of Retrospectively applying the Cost-to-Cost-method for its long-term construction contracts.

Retained Earnings, January 1, as adjusted

Net Income

Retained Earnings, December 31

2)The Company is in the process of adjusting and correcting its books at the end of 2017. In reviewing its records, the following information is compiled.

a)At December 31, 2017, the company decided to change the depreciation method on its office equipment from double-declining-balance to straight-line. The equipment had an original cost of $200,000 when purchased on January 1, 2015. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2017 under the double-declining-balance method was $72,000. They have already recorded 2017 depreciation expense of $25,600 using the double-declining-balance method.Prepare the necessary journal entry at December 31, 2017 before they close their books.

Debit

Credit

b)Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $3,300 because "the amount of the check is about the same every year."Prepare the necessary journal entry at December 31, 2017 before they close their books.

Debit

Credit

c)Reported sales revenue for the year is $1,908,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state's Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that "the sales tax is a selling expense." At the end of the current year, the balance in the Sales Tax Expense account is $103,400. Prepare the necessary journal entry at December 31, 2017 before they close their books.

Debit

Credit