Final answer:
The correct answer is C) Changes in accounting principle. These changes are retrospectively adjusted in the opening balance of retained earnings, net of tax, to maintain comparability of financial statements over time.
Step-by-step explanation:
The retained earnings of a company represent the cumulative net income minus any dividends paid to shareholders over time. When certain changes occur, such as discontinued operations, unusual gains or losses, or changes in accounting principle, these must be reflected in the financial statements.
According to accounting standards, the effect of these changes should usually be shown net of tax and are reported as adjustments to the opening balance of retained earnings to maintain comparability over time. Specifically, changes in accounting principle are retrospectively applied to financial statements.
This means that the cumulative effect of the change is adjusted in the opening balance of retained earnings rather than the period in which the change occurs. However, for discontinued operations and unusual gains or losses, these would typically be recorded in the income statement of the current period rather than directly in the opening balance of retained earnings.