Sage Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2018. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.

Pretax Income from:

Percentage-of-Completion

Completed-Contract

Difference

2017

$781,000

$606,000

$175,0002018

701,000

456,000

245,000

(a) Assuming that the tax rate is30%, what is the amount of net income that would be reported in 2018?

Net income

$

(b) What entry is necessary to adjust the accounting records for the change in accounting principle?