On July 1 Outdoor Sports Store paid $15000 to Midtown 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 Outdoor Sports Store is

Question

Quizplus · Accepted Answer

This is a case of prepaid rent, where Outdoor Sports Store paid for 4 months of rent in advance. Since only one month has passed out of the four months, the unexpired portion of rent is still a prepaid expense. Therefore, the adjusting entry should be a debit to Rent Expense for the portion of rent that has been used up (1/4th of total amount) which is $3750 and a credit to Prepaid Rent for the remaining unexpired portion of rent which is also $3750. Thus, the correct option is C.

On July 1 Outdoor Sports Store Paid $15000 to Midtown