On January 1, a Company Purchased a Five-Year Insurance Policy

Multiple Choice

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

A) Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
B) Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
C) Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.
E) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.