Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2015. In the beginning of 2015, it changed to the percentage-of-completion method. The company decided to continue the use of completed contract for income tax purposes. The tax rate enacted is 40%. The income before taxes under both the methods for the past three years appears below.

2013 2014 2015

Completed contract $300,000 $200,000 $100,000

Percentage-of-completion 500,000 250,000 180,000

5. What amount will be debited to Construction in Progress account, to record the change at beginning of 2015?

a. $250,000

b. $100,000

c. $150,000

d. $ 50,000

6. Which of the following will be included in the journal entry at the beginning of 2015 to record the prior years income effect?

a. A debit to Retained Earnings for $150,000

b. A credit to Retained Earnings for $150,000

c. A credit to Retained Earnings for $100,000

d. A debit to Retained Earnings for $100,000