On January 1, a company purchased a five-year insurance policy for $3,500 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:

Multiple Choice

• Debit Prepaid Insurance, $2,800; credit Insurance Expense, $2,800.

• Debit Prepaid Insurance, $700; credit Insurance Expense, $700.

• Debit Insurance Expense, $700; credit Prepaid Insurance, $2,800.

• Debit Prepaid Insurance, $3,500; credit Cash, $3,500.

• Debit Insurance Expense, $700; credit Prepaid Insurance, $700.