A company pays $36,000 for 12 months' rent on October 1, recording the prepayment as an asset. The adjusting entry on December 31 is a debit to Rent Expense of $9,000, and a credit to Prepaid Rent of $9,000.

Question

Quizplus · Accepted Answer

This is the correct adjusting entry for recognizing the portion of the prepaid rent that has been used during the accounting period (3 months out of 12). The $9,000 debit to Rent Expense represents the amount of rent expense that has been incurred during the 3-month period, and the $9,000 credit to Prepaid Rent reduces the asset account to reflect the remaining unexpired portion of the prepaid rent (9 months out of 12).

A Company Pays $36,000 for 12 Months' Rent on October