On November 1,2016,Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space.The correct adjusting entry on December 31 to show the amount of rent that had expired would include:
A) debit Rent Expense $400;credit Prepaid Rent $400
B) debit Rent Expense $800;credit Prepaid Rent $800
C) debit Prepaid Rent $4,000;credit Rent Expense $4,000
D) debit Rent Expense $4,800;credit Prepaid Rent $4,800

Question

Quizplus · Accepted Answer

Since Peaches Consulting Service paid for 12 months of advance rent, the total amount paid is $4,800. However, as of December 31, only 2 months have passed (November and December), which means that $800 (2 months x $400) of rent has already expired. To adjust for this, we need to debit Rent Expense (an expense account) and credit Prepaid Rent (an asset account), both for $800. This would reduce the balance in the Prepaid Rent account to $4,000 ($4,800 - $800), representing the amount of rent that is still prepaid for the remaining 10 months. Therefore, the correct adjusting entry on December 31 would be:

Debit Rent Expense $800
Credit Prepaid Rent $800

On November 1,2016,Peaches Consulting Service Paid $4,800 for 12 Months