Since the Goode Construction Company was formed in 2006, it has used the completed-contract method for financial reporting, but at the beginning of 2008 it changes to the percentage of- completion method. The company previously had reported the following pretax income:

Analysis of the accounting records discloses that the company earned the following gross profit on each of its projects based on the percentage-of-completion method:

In 2008 the company would have reported sales and cost of completed contracts of $820,000 and $350,000, respectively, under the completed-contract method. The tax rate is 30%. The company has a simple capital structure, with 100,000 shares of common stock outstanding. It paid no dividends. Ignore other expenses (i.e., gross profit is income before income taxes). The company uses the percentage-of-completion method for income taxes.
Required
1. Prepare the journal entry to reflect the change in method at the beginning of 2008.
2. If the company also presents the 2006 and 2007 financial statements for comparative purposes, prepare the income statement disclosures (starting with income before income taxes) and retained earnings disclosures that are required in 2008.
3. What items (if any) would be restated on the financialstatements?

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Sales of completed contracts Less: Cost of completed contracts Gross profit 2006 $300,000 (200,000) 2007 $800,000 $250,000 2006 $100,000 120,000 2007 2008 Project A Project B Project C $125,000 75,000 $400,000