On May 1, Claudia Co. paid $20,000 for the next 5 months of insurance. Assuming Claudia Co. prepares adjustments monthly, which of the following adjusting entries is recorded correctly on May 31?

1 DR: Prepaid Insurance $4,000; CR: Cash $4,000

2 DR: Insurance Expense $4,000; CR: Prepaid Insurance $4,000

3 DR: Prepaid Insurance $20,000; CR: Cash $20,000

4 DR: Insurance Expense $20,000; CR: Cash $20,000