Question: On December 31, 2018, Grantham, Inc., appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes.

On December 31, 2018, Grantham, Inc., appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $2,000,000 increase in the beginning inventory at January 1, 2018. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is _________.

a. $0

b. $600,000

c. $1,400,000

This answer is correct.

d. $2,000,000

(Computation: $2,000,000 (1 - .3) = $1,400,000)

Please help me understand why the $2,000,000 was multipled by 70% instead of 30%? Thank you.

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