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During 2014, 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 follow. Completed-Contract: 2012, $595,000; 2013, $730,000; 2014, $810,000. Percentage-of-Completion: 2012, $700,000; 2013, $850,000; 2014, $900,000. 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) $135,000 on the 2014retained earnings statement

b) $189,000 on the 2014retained earnings statement

c) $135,000 on the 2014income statement

d) $189,000 on the 2014income statement

Accounting Basics, Accounting

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