On October $1,2008,$ Adams Company paid $$4,000$ for a two$-$year insurance policy on the

building. The accounting period ends December $31.$ At the end of $2008,$ the financial

statements should report:

On the balance sheet Prepaid insurance of $$4,000$ and on the income statement Insurance expense

of $$0.$

On the balance sheet Prepaid insurance of $$0$ and on the income statement Insurance expense of

$$4,000.$

On the balance sheet Prepaid insurance of $$2,000$ and on the income statement Insurance expense

of $$2,000.$

On the balance sheet Prepaid insurance of $$3,500$ and on the income statement Insurance expense

of $$500.$

None of the above is correct.