Before 2020, Wangerin accounted for its income from long term construction contracts using the zero profit method Early in 2020, Wangerin changed to the percentage of completion basis for accounting purposes It continues to use the zero profit method for tax purposes Revenue from long term contracts for 2020 has been recorded using the percentage of completion method The following information is available Pre tax Income Percentage of Completion Zero Profit Method Prior to 2020 $450,000 $315,000 2020 180,000 60,000 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 cheque is about the same every year Reported sales revenue for the year is $2,147,000 This includes HST collected for the year The HST rate is 13 Because the sales tax is forwarded to the Receiver General for Canada, the Sales Tax Expense account was 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 $203,400 Instructions Prepare the journal entries necessary at December 31, 2020, to record the above corrections and changes The books are still open for 2020 The income tax rate is 30 Wangerin has not yet recorded its 2020 income tax expense and payable amounts so you may ignore current year tax effects Prior year tax effects must be considered in item 2

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Posted on Jul 13, 2024

Before 2020, Wangerin accounted for its income from long-term construction contracts using the zero-profit method. Early in 2020, Wangerin changed to the percentage-of-completion basis for

Before 2020, Wangerin accounted for its income from long-term construction contracts using the zero-profit method. Early in 2020, Wangerin changed to the percentage-of-completion basis for accounting purposes. It continues to use the zero-profit method for tax purposes. Revenue from long-term contracts for 2020 has been recorded using the percentage-of-completion method. The following information is available.

	Pre-tax Income
	Percentage-of-Completion	Zero-Profit Method
Prior to 2020	$450,000	$315,000
2020	180,000	60,000

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 cheque is about the same every year.
Reported sales revenue for the year is $2,147,000. This includes HST collected for the year. The HST rate is 13%. Because the sales tax is forwarded to the Receiver General for Canada, the Sales Tax Expense account was 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 $203,400.

Instructions

Prepare the journal entries necessary at December 31, 2020, to record the above corrections and changes. The books are still open for 2020. The income tax rate is 30%. Wangerin has not yet recorded its 2020 income tax expense and payable amounts so you may ignore current-year tax effects. Prior-year tax effects must be considered in item 2.