On December 31, 2018, Grantham, Inc

Subject:AccountingPrice:2.86 Bought3

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On December 31, 2018, Grantham, Inc., appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $2,000,000 increase in the beginning inventory at January 1, 2018. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is _________.

 

a. $0

 

b. $600,000

 

 

c. $1,400,000

This answer is correct.

 

d. $2,000,000

 

(Computation: $2,000,000 × (1 - .3) = $1,400,000)

 

Please help me understand why the $2,000,000 was multipled by 70% instead of 30%? Thank you.