On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:
A. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
B. Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
C. Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.
D. Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
E. Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
Answer: B
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