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Beta Co. purchased a property insurance policy by paying $7,500 cash on March 19, 2020, with...

Beta Co. purchased a property insurance policy by paying $7,500 cash on March 19, 2020, with the insurance coverage beginning on April 1, 2020. The Company correctly recorded the transaction on March 19, and no additional related entries were recorded until December 31, 2020. The effect of the December 31, 2020 adjusting entry will be:

Multiple Choice

  • Insurance expense will increase $5,625.

  • Prepaid insurance will decrease $1,875.

  • Insurance expense will increase $1,875.

  • Prepaid insurance will increase $5,625.

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