On January 1, 2021, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $650,000 increase in the January 1, 2021 inventory. Assume that the income tax rate for all years is 20%. The cumulative effect of the accounting change should be reported by Frost in its 2021

income statement as a $650,000 cumulative effect of accounting change

income statement as a $520,000 cumulative effect of accounting change

retained earnings statement as of $650,000 addition to the beginning balance

retained earnings statement as of $520,000 addition to the beginning balance

QUESTION 2

In 2020, a company failed to record $100,000 of depreciation expense on a new asset. This was not discovered until 2021. However, the company did record the depreciation on its 2020 income tax return and properly recorded its 20% income taxes payable? How much was net income overstated or understated in 2020?

Overstated by $100,000

Overstated by $80,000

Understated by $80,000

Understated by $100,000

QUESTION 3

Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2021. In 2021, it changed to the percentage-of-completion method.

The company decided to continue using completed contract for income tax purposes. The tax rate enacted is 20%. Income before taxes under both the methods for the past three years appears below.

2019 2020 2021

Completed contract $450,000 $300,000 $150,000

Percentage-of-completion 750,000 375,000 270,000

What amount will be debited to the Construction in Process account, to record the change at the beginning of 2021?

$75,000

$200,000

$300,000

$375,000