1. Suppose an entry was made on March 1, 2016 to prepay a one-year insurance policy for $1,800. Instead of debiting the prepaid insurance account, the bookkeeper debited the prepaid rent account instead. What is the correct entry to reverse this error?

Select one:

a. Debit Prepaid Insurance for $1,800; Credit Cash for $1,800.

b. Debit Prepaid Insurance for $1,800; Credit Prepaid Rent for $1,800.

c. Debit Cash for $1,800; Credit Prepaid Insurance for $1,800.

d. Debit Prepaid Rent for $1,800; Credit Cash for $1,800.

AAA Company has a December 31 year end. On January 1, 2016, AAA Company took out a $50,000 bank loan. The loan has an interest rate of 10% annually. The loan and the interest will be paid at the end of five years. What adjusting entry is necessary on December 31, 2016?

Select one:

a. Decrease cash $5,000; decrease bank loan payable $5,000

b. Decrease bank loan payable $5,000; increase interest expense $5,000

c. Increase interest payable $5,000; increase interest expense $5,000

d. No entry is required