The balance in the prepaid rent account before adjustment at the end of the year is $12000 and represents three months rent paid on December 1.The adjustment required on December 31 is:

Question

Quizplus · Accepted Answer

Since the prepaid rent account represents three months rent paid, we can calculate the monthly rent as follows:

$12,000 / 3 months = $4,000/month

Since the adjustment is required on December 31, one month's rent (for the month of December) has already been used up. Therefore, the adjustment required is:

Increase Rent Expense $4,000 (to record the rent expense for December)
Decrease Prepaid Rent $4,000 (to reduce the prepaid rent account by one month)

Option D is the correct answer.

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