Reference no: EM132970313

Before 2020, Wangerin accounted for its income from long-term construction contracts using the zero-profit method. Early in 2020, Wangerin changed to the percentage-of-completion basis for accounting purposes. It continues to use the zero-profit method for tax purposes. Revenue from long-term contracts for 2020 has been recorded using the percentage-of-completion method.

The following information is available.

Pre-tax Income

                        Percentage-of-Completion              Zero-Profit Method

Prior to 2020              $450,000                                $315,000
2020                           180,000                               60,000

Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $3,300 because "the amount of the cheque is about the same every year."

Reported sales revenue for the year is $2,147,000. This includes HST collected for the year. The HST rate is 13%. Because the sales tax is forwarded to the Receiver General for Canada, the Sales Tax Expense account was debited. The bookkeeper thought that "the sales tax is a selling expense." At the end of the current year, the balance in the Sales Tax Expense account is $203,400.

Instructions

Problem 1: Prepare the journal entries necessary at December 31, 2020, to record the above corrections and changes. The books are still open for 2020. The income tax rate is 30%. Wangerin has not yet recorded its 2020 income tax expense and payable amounts so you may ignore current-year tax effects. Prior-year tax effects must be considered in item 2.