On July 1 of Year 8, a full years insurance premium of $4,800, covering the period July 1 of Year 8 to June 30 of Year 9, was paid and debited to insurance expense. Assume the following: The company has a calendar scal year. January 1 of Year 8, retained earnings balance is $40,000. Year 8 reported net income (assuming the error is not discovered) is $45,600. Year 9 net income (assuming the error is not discovered) is $60,000. Year 10 net income is $80,000. Ignore taxes. Required a. List the eects of the error on aected accounts and on net income in Year 8 and Year 9. Assume no adjusting entry is made on December 31 of Year 8. Note: Indicate an understatement by using a negative sign (-) with the amount. Indicate no change by entering a zero (0).

b. Prepare the entry to record the error if discovered in Year 8.

c. Prepare the entry to record the error if discovered in Year 9. Prepare the Year 8 and Year 9 retained earnings sections of the statement of stockholders equity.

d. Prepare the entry (if needed) to record the error if discovered in Year 10. Prepare the Year 9 and Year 10 retained earnings sections of the statement of stockholders equity.

\begin{tabular}{|c|c|c|c|c|} \hline Accounts are over (under) stated as follows & \multicolumn{2}{|c|}{ Year 8} & \multicolumn{2}{|c|}{ Year 9} \\ \hline Insurance expense & $ & 0 & $ & 0 \\ \hline Ending prepaid insurance & & 0 & & 0 \\ \hline Net income & & 0 & & 0 \\ \hline Ending retained earnings & & 0 & & 0 \\ \hline \end{tabular} \begin{tabular}{|l|l|l|r|r|} \hline Ref. & Account & Dr. & Cr. \\ \hline c. & & V & 0 & 0 \\ \hline & & & 0 & 0 \\ \hline & To correct error. & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|} \hline & & Year 8 & & Year 9 \\ \hline Retained earnings beginning, adjusted & $ & 0 & $ & 0 \\ \hline Net income & & 0 & & 0 \\ \hline Retained earnings, ending & $ & 0 & s. & 0 \\ \hline \end{tabular} \begin{tabular}{|l|c|c|c|c|} \hline Ref. & Account & Dr. & Cr. \\ \hline d. & & V & 0 & 0 \\ \hline & & V & 0 & 0 \\ \hline & To correct error. & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline & Year 9 & & Year 10 \\ \hline Retained earnings, beginning as reported & $ & 0 & \\ \hline Prior period adjustment & & 0 & \\ \hline Retained earnings beginning, adjusted & & 0$ & 0 \\ \hline Net income & & 0 & 0 \\ \hline Retained earnings, ending & $ & 0$ & 0 \\ \hline \end{tabular}