Davos Limited had $1,500 in prepaid rent at the beginning of the month, representing three months' worth of rent paid in advance.What is the correct adjusting entry at the end of the month?

Question

Quizplus · Accepted Answer

The correct adjusting entry at the end of the month is to debit Rent expense for an amount equal to one month's rent ($500) and credit Prepaid rent for the same amount. This is because $1,000 of the prepaid rent has now been "used up" in the current month, leaving a remaining balance of $500 ($1,500 - $500 = $1,000). Option A is incorrect because it only adjusts for one month instead of the full amount used. Option C is incorrect because it overstates the amount used by $500. Option D is incorrect because it would increase the balance of prepaid rent instead of reducing it to reflect the amount used.

Davos Limited Had $1,500 in Prepaid Rent at the Beginning