Jett Company Purchased an Umbrella Liability Policy in January, 2017

Multiple Choice

Jett Company purchased an umbrella liability policy in January, 2017 and paid a five-year premium for $400,000. It was recorded as Insurance Expense. The error was discovered late in 2017 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.)

A) No entry required because it will self-correct in two more years.
B) $$\begin{array} { | c | r | r | } \hline \text { Prepaid Insurance } & 160,000 & \\\hline \text { Insurance Expense (2017) } & 80,000 \\\hline \text { Retained Earnings } & & 240,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Prepaid Insurance } & 320,000 & \\\hline \text { Insurance Expense } & & 320,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Prepaid Insurance } & 240,000 & \\\hline \text { Insurance Expense (2017) } & 80,000 & \\\hline \text { Retained Earnings } & & 320,000 \\\hline\end{array}$$