Delta company uses the completed - contract method of accounting for long-term construction contracts. Delta started business in 2011 and prepared the following income statements:
2011. 2012
construction revenue 100,000 300,000
construction expense. (40000) (130000)
other expenses. (50000) (70000)
income before taxes. $10,000 $100000
income tax exp.30% (3000) (30000)
net income. $7000 $70000
earnings per share. $0.07. $0.70

The company changes to the percentage- of completion method at the beginning of 2013. It determines the construction revenue and expense amounts nder the percentage of completion method to be as follows:

construction revenue :
2011- $200,000
2012- $420,000
2013- $900,000

construction expense:
2011- $80,000
2012- $182,000
2013- $420,000

The other expenses remains unchanged for 2011 and 2012 and are $80,000 in 2013. Delta has not paid dividends on its 100,000 common shares outstanding. With the 2013 financial statements, the company issues comparative statements for the previous 2 years. Under the completed contract method, construction revenue and construction expense would be $600,000 and $280,000 respectively, in 2013. Delta uses the percentage of completion method for income tax purposes.

Required:

Prepare the journal entry to reflect the change.

construction in progress xxxxx
deferred tax liability. xxxxx
retained earnings. 89600

fill in the x's

Answer rating: 100% (QA)

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