On September 1 of the current year, Prepaid Rent was debited for $3,000. This amount represents payment for one year of rent, paid in advance. The adjusting entry on December 31 will involve a:

Question

Quizplus · Accepted Answer

Since the prepaid rent was for one year and paid in advance on September 1, the portion of that time period that has already passed by December 31 is 4 months (September, October, November, and December). Therefore, the adjusting entry on December 31 should recognize the expense for those 4 months, which amounts to $1,000 ($3,000/12 months x 4 months). This means that Rent Expense will need to be debited for $1,000 in the adjusting entry to properly recognize the expense for the period. The other options are incorrect as they do not reflect the correct amount of rent expense that needs to be recognized.

On September 1 of the Current Year, Prepaid Rent Was