On 12/31/22, the Cheboygan Company paid $4,000 of prepaid insurance and expensed the entire amount. The policy covered the period 1/1/23 to 12/31/26.

The error was discovered on 1/10/27; the 2026 books are closed. The correcting journal entry will include what entry to 1/1/27 Retained Earnings?

Select one:

a.

$3,000 debit

b.

$3,000 credit

c.

$1,000 debit

d.

$1,000 credit

e.

No journal entry needed