Question

At the beginning of 2017, Riverbed Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion $114,200 and completed-contract $79,700. The tax rate is 35%.
Prepare Riverbed’s 2017 journal entry to record the change in accounting principle.

Account Titles and Explanation	Debit	Credit

Answer 1

Your answer is as follows:

Journal Entries
Account Title and Explanation	Debit $	Credit $
Construction in process	$        34,500
(114200-79700)
Deferred Tax Liability		$        12,075
(34500*35%)
Retained Earnings		$        22,425
(34500-12075)