The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months' rent paid on December 1.The adjusting entry required on December 31 is to

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Since the $21,000 represents three months' rent, the monthly rent expense is $7,000 (21,000/3). As of December 31, one month has already passed, so the remaining prepaid rent is only $14,000 (2 months remaining x $7,000/month). Therefore, the adjusting entry would be to debit Rent Expense for the amount of rent used during the month of December ($7,000) and credit Prepaid Rent for the same amount ($7,000). This reduces the Prepaid Rent account to its correct balance of $14,000, reflecting the two months' rent still prepaid.

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