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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 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

1. What amount will be debited to "Construction in Process" account, to record the change at beginning of 2018?

2. What amount will be credited to "Deferred Tax Liability" account?

3. What amount will be credited to "Retained Earnings" account?

Step-by-step answer

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Subject: Accounting, Business

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