Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. At the beginning of 2018, it changed to the percentage-of-completion method.

The company decided to use the same for income tax purposes. The tax rate enacted is 40%.

Income before taxes under both the methods for the past three years appears below.

2016 2017 2018

Completed contract $650,000 $375,000 $350,000

Percentage-of-completion 825,000 465,000 470,000

Journal Entry at the beginning of 2018

1. What amount will be debited to "Construction in Process" account, to record the change at beginning of 2018?

2. What amount will be credited to "Deferred Tax Liability" account?

3. What amount will be credited to "Retained Earnings" account?

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At the beginning of 2018, a construction company that began operations in 2016 changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below:

Completed-Contract Percentage-of-Completion

2016 $ 950,000 $ 1,800,000

2017 1,250,000 1,900,000

2018 1,400,000 2,100,000

Assuming an income tax rate of 30% for all years, the effect of this accounting change on prior periods should be reported by f

Journal Entry at the beginning of 2018

4. What amount will be debited to "Construction in Process" account, to record the change at beginning of 2018?

5. What amount will be credited to "Deferred Tax Liability" account?

6. What amount will be credited to "Retained Earnings" account?