Pan Erickson Construction Company changed from the completed-contract to the percentage-of-compleltion method of accounting for long-term construction contracts during 2008. For tax purposes, the company employs the completed-contract method and will continue this approach i nthe future.(hint: adjust all tax consequences through the Deferred Tax Liability account). The appropriate information related to this change is as follows: pretax income from: percentage-of-completion in 2007 $780,000, and completed-contract $590,000, and difference $190,000, in 2008 percentage-0f-completion $700,000, completed-contract $480,000, and difference $220,000.

a-Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2008?
b-What entry(is) are necessary toadjust the accounting records for the change in accounting principle?

a- To calculate the amount of net income that would be reported in 2008, we need to determine the taxable income for both methods (percentage-of-completion and completed-contract) and then apply the tax rate of 35%.

First, let's calculate the taxable income for the percentage-of-completion method:
Taxable income = Pretax income - Difference

Taxable income for percentage-of-completion in 2008 = $700,000 - $220,000 = $480,000

Next, let's calculate the taxable income for the completed-contract method:
Taxable income for completed-contract in 2008 = $480,000

Now, let's apply the tax rate of 35% to calculate the net income:
Net income = Taxable income * (1 - Tax rate)
Net income = ($480,000 * 35%)
Net income = $168,000

Therefore, the amount of net income that would be reported in 2008 is $168,000.

b- To adjust the accounting records for the change in accounting principle, we need to make an entry to account for the deferred tax liability. This is because the company will continue to use the completed-contract method for tax purposes but has shifted to the percentage-of-completion method for financial reporting.

The journal entry to record the adjustment for the deferred tax liability is as follows:

Debit: Deferred Tax Liability (Long-term liability account)
Credit: Retained Earnings (Equity account)

The amount to be debited to the Deferred Tax Liability account can be calculated by multiplying the difference between the taxable income under the completed-contract method and the percentage-of-completion method by the tax rate. In this case, the difference is $220,000, and the tax rate is 35%.

Deferred Tax Liability = Difference * Tax Rate
Deferred Tax Liability = $220,000 * 35%
Deferred Tax Liability = $77,000

So, the journal entry to adjust the accounting records for the change in accounting principle would be:

Debit: Deferred Tax Liability $77,000
Credit: Retained Earnings $77,000