The balance in the Prepaid Rent account before adjustment at the end of the year is $15,000, which represents three months' rent paid on December1. The adjusting entry required on December 31 is to
A) debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.
B) debit Rent Expense, $10,000; credit Prepaid Rent $10,000.
C) debit Prepaid Rent, $5,000; credit Rent Expense, $5,000.
D) debit Prepaid Rent, $10,000; credit Rent Expense, $10,000.

Question

Quizplus · Accepted Answer

The adjusting entry required on December 31 is to reduce Prepaid Rent account by the amount of rent that has been used up during the year and record that amount as Rent Expense. Since three months' rent has been paid in advance and the company has used only one month's rent during the year, the amount of rent that has been used up during the year is $5,000 ($15,000/3). Therefore, the entry needed is to debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.

The Balance in the Prepaid Rent Account Before Adjustment at the End