Cash basis to accrual basis for recognizing warranty expense

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Reference no: EM131266749

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2.0 million at the beginning of the year. Its tax rate is 30%. The company booked a year-end warranty liability of $3 million. As a result of this change, the firm would(Compute your answers in millions of dollars.):

Report a current period charge decreasing net income by $600,000.

Report a prior period adjustment decreasing retained earnings by $600,000.

Report a prior period adjustment decreasing retained earnings by $1,400,000.

Report a current period charge decreasing net income by $1,400,000.

Reference no: EM131266749

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