Wertz Construction Company decided at the beginning of 2014 to change from the c

Question

Wertz Construction Company decided at the beginning of 2014 to change from the completed-contract method to the percentage-of-completion method for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2014, pretax income under the two methods was as follows: percentage-of-completion $134,200, and completed-contract $53,900. The tax rate is 30%.

Prepare Wertz’s 2014 journal entry to record the change in accounting principle. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Explanation / Answer

Contruction in process account debit   80,300

To deferred tax liability 24,090

To retained earnings 56,210

Pre tax income Percentage of completion          134,200 Completed contract            53,900 Difference            80,300 Tax effect            24,090 Income effect            56,210

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