On July 1 the Fog Forest Gallery paid $4,000 to Tapley Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on August 31, the adjusting entry to be made by the Fog Forest is
A) debit Rent Expense, $3,000; credit Prepaid Rent, $1,000.
B) debit Prepaid Rent, $2,000; credit Rent Expense, $2,000.
C) debit Rent Expense, $1,000; credit Prepaid Rent, $3,000.
D) debit Rent Expense, $2,000; credit Prepaid Rent, $2,000.

Question

Quizplus · Accepted Answer

The correct adjusting entry is to recognize the rent expense for July and August, which totals $2,000 ($4,000 for 4 months means $1,000 per month). This reduces the Prepaid Rent account by $2,000 and records the expense for the two months that have passed.

On July 1 the Fog Forest Gallery Paid $4,000 to Tapley