Letters Express Company purchased an umbrella liability policy in January, 2015 and paid a five-year premium for $200,000. It was recorded as Insurance Expense. The error was discovered in early 2018 when the accountants were reconciling 2017 for adjusting entries. What is the proper entry to correct the error at December 31, 2017? (Ignore income taxes.)

No entry required because it will self-correct in two more years.

Account Debit Credit Prepaid Insurance 80,000 Insurance Expense (2017) 40,000 Retained Earnings-Prior Period Adj. 120,000

Account Debit Credit Retained Earnings-Prior Period Adj. 120,000 Insurance Expense (2017) 40,000 Prepaid Insurance 160,000

Account Debit Credit Prepaid Insurance 120,000 Insurance Expense (2017) 40,000 Retained Earnings -Prior Period Adj. 160,000