On July 1 of the current calendar year, Plum Co. paid $9,500 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:

Multiple Choice

• A credit to a liability and a debit to a prepaid expense for $2,375.

• A debit to a prepaid expense and a credit to an expense for $2,375.

• A debit to a prepaid expense and a credit to Cash for $7,125.

• A debit to an expense and a credit to a prepaid expense for $2,375.

• A debit to an expense and a credit to a prepaid expense for $7,125.