On July 1 of the current calendar year, Plum Co. paid $9300 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:
A. A debit to a prepaid expense and a credit to an expense for $2325.
B. A debit to an expense and a credit to a prepaid expense for $2325.
C. A debit to an expense and a credit to a prepaid expense for $6975.
D. A credit to a liability and a debit to a prepaid expense for $2325.
E. A debit to a prepaid expense and a credit to Cash for $6975.
Answer: B
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