Assume a Company Sold 12 Months' Worth of Car Insurance

Multiple Choice

Assume a company sold 12 months' worth of car insurance to a customer on November 1. When it made the sale, it recorded an increase in cash and also recorded "unearned revenues." Under accrual accounting, the company should make which of the following adjustments, if any, to its records at the end of December, with regard to this insurance policy?

A) No adjustment is needed since the cash was properly recorded on November 1.
B) It should record a decrease in prepaid assets, an increase in expense, and a decrease in equity.
C) It should record an increase in revenues, an increase in equity, and a decrease in liabilities.
D) It should record a decrease in revenues, an increase in liabilities, and a decrease in equity.
E) It should record an increase in revenues, an increase in cash, and an increase in equity.