Braun Corp C) D)

Multiple Choice

Braun Corp. purchased a service vehicle liability policy in July, 2017 and paid a five-year premium for $450,000. 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 errors in 2017 if the tax rate for all years is 40%?

A) No entry needed because it will self-correct in two more years.
B) $$\begin{array} { | l | r | r | } \hline \text { Prepaid Insurance } & 315,000 & \\\hline \text { Prepaid Income Taxes } & 126,000 & \\\hline \text { Retained Earnings } & & 441,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Prepaid Insurance (End 2017) } & 405,000 & \\\hline \text { Insurance Expense } & & 405,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Prepaid Insurance (End 2017) } & 225,000 & \\\hline \text { Income Taxes Payable } & & 90,000 \\\hline \text { Retained Earnings } & & 135,000 \\\hline\end{array}$$