ACC 323 Ch 20: Prior Period Adjustment - Error Correction Company began doing business in Year 1. An error made in Year 1 was discovered while preparing Year 2 financial statements. Fifteen months of insurance costs ($15,000) were expensed in Year 1 . The actual amount of insurance costs paid in Year 1, $24,000, was correctly deducted on the Year 1 tax return. The correct amount of insurance costs, $12,000, were expensed in Year 2. Company policy requires all insurance payments to be recorded initially as Prepaid Insurance. A list of pertinent information follows. These insurance costs comprised the only difference between PTNI and Taxable Income in Year 1. Paid $12,000 for Year 1 insurance coverage on 1/1/Y1 Paid $12,000 for Year 2 insurance coverage on 12/1/Y1 Paid $12,000 for Year 3 insurance coverage on 12/1/Y2 \begin{tabular}{|l|c|c|c|c} \hline & Tax Rate & Taxable Income & Net Income & Dividends Declared \\ \hline Year 1 & 21% & 75,000 & 66,360 & 0 \\ \hline Year 2 & 21% & & 45,000 & 10,000 \end{tabular} Make JE showing the proper amount of insurance costs that should have been expensed in Year 1. Make Year 1JE showing the tax expense actually recorded in Year 1. DR Tax expense CR Cash Make JE showing the proper amount of tax expense that should have been expensed in Year 1. Make the appropriate Year 2 journal entry to correct this error. Prepare the Statement of Retained Earnings for Year 2 year-end. Retained earnings, as previously reported, 1/1/Y2 Adjusted retained earnings, 1/1/Y2 Plus: Less: Retained earnings, 12/31/Y2