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

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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.

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