On July 1 the Fog Forest Gallery paid $8,000 to Tapley Realty for 4 months rent beginning July 1. Rent Expense was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fog Forest is
A) debit Rent Expense, $2,000; credit Prepaid Rent, $2,000.
B) debit Prepaid Rent, $6,000 credit Rent Expense, $6,000.
C) debit Rent Expense, $6,000; credit Prepaid Rent, $6,000.
D) debit Prepaid Rent, $2,000; credit Rent Expense, $2,000.

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Prepaid Rent for $6,000 and credit Rent Expense for $6,000. This is because $2,000 of the $8,000 paid for rent covers the current month (July), leaving $6,000 as prepaid rent for the future months. The adjustment recognizes the expense for the current period and defers the rest.

On July 1 the Fog Forest Gallery Paid $8,000 to Tapley