The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is to
A) debit Rent Expense, $7,000; credit Prepaid Rent, $7,000.
B) debit Rent Expense, $14,000; credit Prepaid Rent $14,000.
C) debit Prepaid Rent, $7,000; credit Rent Expense, $7,000.
D) debit Prepaid Rent, $14,000; credit Rent Expense, $14,000.

Question

Quizplus · Accepted Answer

The adjusting entry required on December 31 is to recognize the expired portion of prepaid rent as Rent Expense and reduce the prepaid balance accordingly. Since three months' rent was prepaid, one month's rent has been used up by the end of December, so the adjustment will be for one month's rent. Therefore, the entry is:
Debit Rent Expense for one month's rent ($7,000) and credit Prepaid Rent for one month's rent ($7,000). This will bring the prepaid balance down to $14,000, which represents the remaining two months' rent that has not yet been used.

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