The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000, which represents 12 months rent paid on November 1. The adjusting entry required on December 31 to show the amount of rent that had expired is:

Question

Quizplus · Accepted Answer

Since the prepaid rent is for 12 months and it was paid on November 1st, it means that the rent expired at the end of each month starting from November, and thus two months have expired by the end of the year (December 31st).

To reflect this, an adjusting entry of $2,000 is needed to reduce the prepaid rent account by two months ($1,000/month) and recognize that amount as rent expense for the period.

Therefore, the correct option is B.

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