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? A. Prepaid insurance will decrease $750. B. Insurance expense will increase $750. C. Insurance expense will increase $2,250. D. Prepaid insurance will increase $2,250.
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