During 2011, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below:

Completed-Contract Percentage-of-Completion

2009 $ 475,000 $ 800,000

2010 625,000 950,000

2011 700,000 1,050,000

$1,800,000 $2,800,000

Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of

a. $600,000 on the 2011 income statement.

b. $390,000 on the 2011 income statement.

c. $600,000 on the 2011 retained earnings statement.

d. $390,000 on the 2011 retained earnings statement.

On December 31, 2011 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2011 beginning inventory to increase by $420,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/11, assuming a 40% tax rate, is

a. $420,000.

b. $252,000.

c. $168,000.

d. $0.