On April 1,2011,the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date.Which of the following correctly describes the effect of the December 31,2011 adjusting entry on the financial statements? (Assume that no adjusting entries have been made during the year.)
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.
Correct Answer:
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