In 2019, Swan Company discovered that it had for the past 10 years capitalized as a production cost certain expenses that are properly classified as administrative expenses. The total amount of the expense for 2018 was $300,000, $60,000 of the item was included in the ending inventory that year and $240,000 was deducted as cost of goods sold.
A. The company should amend its 2018 tax return and reduce its income by $240,000.
B. The company should change its accounting method in 2019, with a $60,000 negative § 481 adjustment which decreases its 2019 taxable income.
C. The company should change its accounting method in 2019, and increase its 2019 income by $60,000, the amount of the positive § 481 adjustment to income.
D. The company should change its accounting method in 2019 and recognize a $60,000 negative § 481 adjustment that will be spread equally over 2019-2022.
E. None of these.
Answer: B
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