Question No. 2 Accounting Changes

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 HA's 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.