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 $ 525,000 $ 900,000

2017 625,000 950,000

2018 750,000 1,050,000

$1,900,000 $2,900,000

Journal entry at the beginning of 2018

Question #1 Construction in Progress has a debit balance of $

Question #2 Deferred Tax Liability has a credit balance of $

Question #3 Retained Earnings has a credit balance of $