Cromartie Corporation purchases a two-year insurance policy on July 1, 2008. At the time, they recorded the transaction as a debit to Insurance…

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Cromartie Corporation purchases a two-year insurance policy on July 1, 2008. At the time, they recorded the transaction as a debit to Insurance Expense and a credit to Cash for $6,000. What adjusting entry should they make on December 31, 2008?

A.  Debit Insurance Expense (Ret. Earn) and credit Prepaid Insurance for $1,500

B.   Debit Prepaid Insurance and credit Insurance Expense (Ret. Earn) for $4,500

C. Debit Prepaid Insurance and credit Cash for $4,500

D.   No adjustment is necessary

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