On November 1, 2019, Two Sisters Company pays $36,000 cash for six months rent and debits prepaid rent at the time of the payment. The amount of the adjusting entry on December 31, 2019, would be:

Question

Quizplus · Accepted Answer

The rent covers six months, so the monthly rent is $36,000 / 6 = $6,000. By December 31, 2019, two months have passed, so the adjusting entry for the rent expense incurred would be 2 months * $6,000/month = $12,000.

On November 1, 2019, Two Sisters Company Pays $36,000 Cash