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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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