During 2019, ABC 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

2017 $ 475,000 $ 900,000

2018 625,000 1,050,000

2019 700,000 1,050,000

$1,800,000 $3,000,000

Assuming an income tax rate of 40% for all years.

the effect of this accounting change on prior periods should be reported by a credit of...........

Select one:

a. $510,000 on the 2019 retained earnings statement

b. $720,000 on the 2019 income statement

c. $720,000 on the 2019 retained earnings statement

d. $510,000 on the 2019 income statement