Question
Homer Alaska Inc. (HA) has used the completed-contract method to account for long-term construction contracts since its inception in 2018. In 2020, HA decided to
Homer Alaska Inc. (HA) has used the completed-contract method to account for long-term construction contracts since its inception in 2018. In 2020, HA decided to change to the percentage-of-completion method because it is the industry norm. HA previously used the completed-contract method for income tax purposes and will continue to do so. Its income tax rate is 20%. The following lists HAs income under each of the two income recognition methods:
|
| Year ended December 31 | ||
| Income before taxes | 2018 | 2019 | 2020 |
| Completed-contract method (reported) | $ 80,000 | $ 120,000 | $ 170,000 |
| Percentage-of-completion method(calculated) | $ 100,000 | $ 150,000 | $ 200,000 |
Required:
Prepare the journal entry to reflect the accounting change in 2020, the year of the change.
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Financial Accounting
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
3rd edition
9780077506902, 78025540, 77506901, 978-0078025549
