Problem 1

• During 2018, a construction company that began operations in 2016 changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes.
• Income tax rate of 30% for all years,
• Gross profit figures under both methods for the past three years appear below:

Completed-Contract Percentage-of-Completion

2016 $ 475,000 $ 900,000

2017 625,000 950,000

2018 700,000 1,050,000

total $1,800,000 $2,900,000

Required:

a Construction in Progress has a debit balance of $

b Deferred Tax Liability has a credit balance of $

c Retained Earnings has a credit balance of $