Since incorporation in 2018, Ning Construction Inc. has accounted for its income from long-term construction contracts using the completed-contract method because this method is allowed by the Canada Revenue Agency. The completed-contract method allowed Ning to postpone income taxes into the future. Because Ning wanted to expand and needed to obtain additional financing, early in 2020, the company changed from following ASPE to following IFRS. Due to this change, Ning adopted the percentage-of-completion basis for financial accounting purposes. The completed-contract method will continue to be used for tax filing purposes. The senior accountant has arrived at the following information for the only contract in process during the three fiscal years from 2018 to 2020. Ning had no other contracts since incorporation. 

Instructions 

a. Prepare the necessary journal entry(ies) at December 31, 2020, to record the above corrections and changes as appropriate. The books are still open for 2020 and have accounts with balances as indicated for the completed-contract method. Because Ning has not yet recorded its 2020 income tax expense and payable amounts, you may ignore tax effects for the current year. 

b. Prepare the necessary journal entries at December 31, 2020, to recognize revenue and expenses. 

c. Assume instead that the change was implemented in early 2021 and that the tax rate for Ning is 25%. Repeat part (a).

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Year ended December 31, 2020 2019 2018 Completed-contract: Balance Contract Asset/Liability (excluding billings) $1,950,000 $1,450,000 $800,000 Revenue from long-term contracts Construction expenses Percentage-of-completion: Balance Contract Asset/Liability (excluding billings) 2,105,000 1,575,000 850,000 Revenue from long-term contracts Construction expenses 530,000 725,000 850,000 500,000 650,000 800,000