Doug Paid $3,000 on a One-Year Insurance Policy on March

Multiple Choice

Doug paid $3,000 on a one-year insurance policy on March 1. The entry included a debit to Prepaid Insurance. The adjusting entry on December 31 of Year 1 would include a:

A) debit to Prepaid Insurance for $2,500; and a credit to Cash for $2,500.
B) debit to Insurance Expense for $2,500; and a credit to Prepaid Insurance for $2,500.
C) debit to Insurance Expense for $3,000; and a credit to Prepaid Insurance for $3,000.
D) debit to Cash for $3,000; and a credit to Prepaid Insurance for $3,000.