Refer to the accounting change by Wertz Construction Company in BE21.1. Wertz has a profit-sharing plan, which pays all employees a bonus at year-end based on 1% of pretax income. Compute the indirect effect of Wertz’s change in accounting principle that will be reported in the 2025 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers.

Data from BE21.1:

At the beginning of 2025, Wertz Construction Company changed from the cost- recovery method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the cost-recovery method for tax purposes. For years prior to 2025, pretax income under the two methods was as follows: percentage-of-completion $120,000, and cost- recovery $80,000. The tax rate is 20%. Prepare Wertz’s 2025 journal entry to record the change in accounting principle.