On April 1, 2016, the Premium on a One-Year Insurance

Multiple Choice

On April 1, 2016, the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date. The books are adjusted only at year-end. Which of the following correctly describes the effect on the financial statements of the December 31, 2016 adjusting entry?

A) Prepaid insurance will decrease $750.
B) Insurance expense will increase $750.
C) Insurance expense will increase $2,250.
D) Prepaid insurance will increase $2,250.