On December 31, 2012, Lanigan Company prepaid the premium of $6,000 cash for insurance coverage during January 2013. Which of the following would be the correct entry to record this transaction?
Question 3 options:

1. Increase in prepaid insurance expense, an asset, of $6,000 and decrease in cash of $6,000.
2. Decrease in insurance payable of $6,000, with no effect on net income or retained earnings, and an increase in cash of $6,000.
3. Increase in insurance expense, decreasing both net income and retained earnings by $6,000 and decrease in cash of $6,000.
4. Increase in prepaid insurance expense, an asset, decreasing both net income and retained earnings by $6,000 and decrease in cash of $6,000.