Cash basis to the accrual basis

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Reference no: EM13744989

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2.1 million at the beginning of the year. Its tax rate is 35%. The company booked a year-end warranty liability of $3 million. As a result of this change, the firm would:

A) Report a current period charge decreasing net income by $735,000.

B) Report a prior period adjustment decreasing retained earnings by $735,000.

C) Report a current period charge decreasing net income by $1,365,000.

D) Report a prior period adjustment decreasing retained earnings by $1,365,000.

Reference no: EM13744989

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