On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. Assuming adjustments are only made at year-end, the adjusting entry needed on December 31 is:
A. Debit Insurance Expense $3,000; credit Prepaid Insurance $3,000.
B. Debit Prepaid Insurance $6,000; credit Cash $6,000.
C. Debit Insurance Expense $3,000; credit Accounts Payable $3,000.
D. Debit Insurance Expense $6,000; credit Accounts Payable $6,000.
E. Debit Cash $6,000; credit Prepaid Insurance $6,000.
Answer: A
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