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
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
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