A company has an asset account, Prepaid Insurance, with a balance of $3,750 at the beginning of the month. The company used $980 of insurance during the month. Which of the following statements is true?

Retained earnings should decrease and stockholders' equity should increase because of this event.

The company should credit Insurance Expense for $980 and debit Prepaid Insurance for $980.

Retained earnings and stockholders' equity should increase because of this event.

The company should debit Insurance Expense for $980 and credit Prepaid Insurance for $980.