Cromartie Corporation purchases a two-year insurance policy on July 1, 2008. At the time, they recorded the transaction as a debit to Insurance...

Cromartie Corporation purchases a two-year insurance policy on July 1, 2008. At the time, they recorded the transaction as a debit to Insurance Expense and a credit to Cash for $6,000. What adjusting entry should they make on December 31, 2008?

A.  Debit Insurance Expense (Ret. Earn) and credit Prepaid Insurance for $1,500 

B.   Debit Prepaid Insurance and credit Insurance Expense (Ret. Earn) for $4,500 

C. Debit Prepaid Insurance and credit Cash for $4,500 

D.   No adjustment is necessary