The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month. The company used $980 of insurance coverage during the month. Which of the following statements is correct?

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

Retained earnings will decrease and stockholders' equity will increase.

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

Retained earnings and stockholders' equity will both increase.