The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000 and represents three months rent starting on November 1.The adjusting entry required on December 31, assuming adjusting entries have not previously been made, is
A)debit Prepaid Rent, $4,000; credit Rent Expense $4,000.
B)debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.
C)debit Rent Expense, $12,000; credit Prepaid Rent, $12,000.
D)debit Rent Expense, $8,000; credit Prepaid Rent, $8,000.

Question

Quizplus · Accepted Answer

Since the $12,000 covers three months starting from November 1, by December 31, two months of rent have been used ($12,000 / 3 months = $4,000 per month, so $4,000 x 2 months = $8,000). The adjusting entry should recognize the expense for these two months, reducing Prepaid Rent and increasing Rent Expense by $8,000.

The Balance in the Prepaid Rent Account Before Adjustment at the End