1.

Williams Construction Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2015. For tax purposes, the company employs the cost-recovery method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.

Pretax Income from

Percentage-of-Completion Cost-Recovery Difference

2014 $1,150,000 $835,000 $315,000

2015 980,000 600,000 380,000

Instructions

(a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2015?

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