If an entity paid $200 for two months' rent in advance on 1 June and recorded it all as prepaid rent on that date, which of the following would be the necessary adjusting entry at 30 June?
A) Debit rent expense $100 and credit prepaid rent $100
B) Debit prepaid rent $100 and credit rent expense $100
C) Debit rent expense $200 and credit prepaid rent $200
D) Debit prepaid rent $200 and credit rent expense $200

Question

Quizplus · Accepted Answer

The adjusting entry at 30 June would be to recognize rent expense for one month ($100) and reduce the prepaid rent account by the same amount. Therefore, option A is correct. Option B is incorrect because it would increase the prepaid rent account instead of recognizing the expense. Option C is incorrect because it would recognize the entire $200 as rent expense instead of only recognizing $100 for the current month. Option D is also incorrect for the same reason as option C.

If an Entity Paid $200 for Two Months' Rent in Advance