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On January 1, 2014, Columbia Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $2,320,000 increase in the January 1, 2014 inventory. Assume that the income tax rate for all years is 25%. The cumulative effect of the accounting change should be reported by Columbia in its 2014

income statement as a $1,740,000 cumulative effect of accounting change.

retained earnings statement as a $1,740,000 addition to the beginning balance.

retained earnings statement as a $638,000 addition to the beginning balance.

income statement as a $2,320,000 cumulative effect of accounting change

The Chalet Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/14 and 12/31/15 contained the following errors:

	2014	2015
Ending inventory	$11,000 understatement	$14,000 overstatement
Advertising expense	9,500 overstatement	11,500 understatement

Assume that the 2014 errors were not corrected and that no errors occurred in 2013. By what amount will 2014 income before income taxes be overstated or understated?

$20,500 understatement

$2,000 overstatement

$5,000 understatement

$9,500 overstatement