Shelley Construction Began Operations in 2016 and Appropriately Used the Completed-Contract

Essay

Shelley Construction began operations in 2016 and appropriately used the completed-contract method in accounting for its long-term construction contracts. The prepared the following information: $$\begin{array} { l r r r } { \text { Completed-Contract Method } } & { \mathbf { 2 0 1 6 } } & { \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 8 } } \\\hline \text { Construction Revenue } & \$ 1,775,000 & \$ 1,977,500 & \$ 2,274,125 \\\text { Expenses } & \underline { 975,000 } & \underline { 1,002,500 } & \underline { 1,152,875 } \\\text { Income before income taxes } & \$ 800,000 & \$ 975,000 & 1,121,250\end{array}$$ Effective January 1, 2018, Shelley changed to the percentage-of-completion method tax reporting and can justify the change? the company's tax rate is 35%. It determines the construction and revenue expense amounts under the percentage of completion method to be: $$\begin{array} { l r r r } \text { Percentage-of-Completion } & { \mathbf { 2 0 1 6 } } & { \mathbf { 2 0 1 7 } } & { \mathbf { 2 0 1 8 } } \\\hline \text { Construction Revenue } & \$ 2,200,000 & \$ 2,530,000 & \$ 2,909,500 \\\text { Expenses } & \underline { 1,100,000 } & \underline { 1,232,000 } & \underline { 1,478,400 } \\\text { Income before income taxes } & \$ 1,100,000 & \$ 1,298,000 & \$ 1,431,100\end{array}$$ Required:
1) How would the company account for the change?
2) Prepare the journal entries to reflect the changes.