Question
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
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
a What amount will be debited to Construction in Process account, to record the change at beginning of 2018?
b What amount will be credited to Deferred Tax Liability account?
c What amount will be credited to Retained Earnings account?
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