Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2018. In 2018, it changed to the percentage-of-completion method. The company decided to continue using the competed contract method 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 $550,000 $300,000 $150,000

Percentage-of-completion 750,000 375,000 270,000

Which of the following will be included in the journal entry made by Dream Home to record the income effect?

A debit to Retained Earning for $237,000

A debit to Retained Earnings for $165,000

A credit to Retained Earnings for $165,000

A credit to Retained Earnings for $237,000