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Create the journal entry to reflect the accounting change

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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:

Problem 1: Create the journal entry to reflect the accounting change in 2020, the year of the change.

Reference no: EM132972295

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