Panda Corporation paid cash of $60,000 on June 1, 2014 for one year's rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2014 adjusting entry is

Question

Quizplus · Accepted Answer

The correct adjusting entry is to recognize the rent expense incurred from June 1, 2014, to December 31, 2014, which is 7 months. The total prepaid rent is $60,000 for 12 months, so the monthly rent is $60,000 / 12 = $5,000. For 7 months, the rent expense is $5,000 * 7 = $35,000. Therefore, debit Rent Expense and credit Prepaid Rent for $35,000 to reflect the expense incurred during this period.

Panda Corporation Paid Cash of $60,000 on June 1, 2014