Ernst Company purchased equipment that cost $3,000,000 on January 1, 2017. The entire cost was recorded as an expense. The equipment had a nine-year life and a $120,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2019. Ernst is subject to a 40% tax rate. Before the correction was made and before the books were closed on December 31, 2019, retained earnings was understated by1. $1,328,000.2. $1,416,000.3. $1,800,000.4. $1,344,000.