Question 32

On 12/31/14, the Cheboygan Company paid $4,000 of prepaid insurance and expensed the entire amount. The policy covered the period 1/1/15 to 12/31/18.

The error was discovered on 1/10/17; the 2016 books are still open. The correcting journal entry will include what entry to 1/1/16 Retained Earnings?

Select one:

a. $3,000 debit

b. $3,000 credit

c. $2,000 debit

d. $2,000 credit