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Which correctly describes the effect on financial statements

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Problem 1: 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?

Option 1: Prepaid insurance will decrease $750.

Option 2: Insurance expense will increase $750.

Option 3: Insurance expense will increase $2,250.

Option 4: Prepaid insurance will increase $2,250.

Reference no: EM132843956

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