On July 1, Runner's Sports Store paid $12,000 to Acme Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is

Question

Quizplus · Accepted Answer

The adjusting entry to be made by Runner's Sports Store is to recognize the portion of the prepaid rent that has been used up during the month of July. Since the prepaid rent was for four months, one-fourth of the prepaid rent ($12,000/4 = $3,000) has been used up during July. Therefore, the entry should be a debit to Rent Expense for $3,000 and a credit to Prepaid Rent for $3,000. Choice letter C is the correct answer.

On July 1, Runner's Sports Store Paid $12,000 to Acme