During 2011, a construction company changed from the cost-recovery 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:

Cost-Recovery 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

Select one:

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

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

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

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