E22-1B (Change in Principle—Long-term Contracts) Choice Two Manufacturing Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2014. For tax purposes, the company empl

E22-1B (Change in Principle—Long-term Contracts) Choice Two Manufacturing Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2014. For tax purposes, the company employs the completed-contract method and will continue this approach in the 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                         Completed-Contract                     Difference
2013            $680,000                                                        $500,000                               $180,000
2014              600,000                                                          560,000                                   40,000
Instructions
(a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2014?
(b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?