Kingbird Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2021. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.
Pretax Income from:
Percentage-of-Completion Completed-Contract Difference
2020 $752,200 $586,700 $165,500
2021 683,500 444,700 238,800
(a) Assuming that the tax rate is 30%, what is the amount of net income that would be reported in 2021?
(b) What entry (ies) are necessary to adjust the accounting records for the change in accounting principle?
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