MC Qu. 79 LO 20-06 A company switched from the cash basis to the accrual basis for...

A company switched from the cash basis to the accrual basis for recognizing warranty expense. The unrecorded liability for warranties was $2.4 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:

Report a current period charge decreasing net income by $720,000.

Report a current period charge decreasing net income by $1,680,000.

Report a prior period adjustment decreasing retained earnings by $720,000.

Report a prior period adjustment decreasing retained earnings by $1,680,000.