West Company signed a one-year lease on April 1 and paid the $11,400 total year's rent in advance. West recorded the transaction as a debit to Prepaid Rent and a credit to Cash.
What adjusting entry should West make on December 31 (no previous adjustment has been made)?
A) Prepaid Rent 2,850
Rent Expense 2,850
B) Prepaid Rent 8,550
Rent Expense 8,550
C) Rent Expense 8,550
Prepaid Rent 8,550
D) Rent Expense 2,850
Prepaid Rent 2,850
E) None of the above

Question

Quizplus · Accepted Answer

Rent Expense should be recognized for the period the space has been used. From April 1 to December 31 is 9 months. The monthly rent is $11,400 / 12 = $950. For 9 months, the rent expense is $950 * 9 = $8,550. The adjusting entry increases Rent Expense and decreases Prepaid Rent by $8,550.

West Company Signed a One-Year Lease on April 1 and Paid