On July 1, Runner's Sports Store paid $14,000 to Corona Realty for four months rent beginning July 1.Prepaid Rent was debited for the full amount.If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is

Question

Quizplus · Accepted Answer

The adjusting entry needed is to recognize the portion of the prepaid rent that has been used up during the month of July. Since the rent was prepaid for four months, one-fourth (or $3,500) of the prepaid rent has been used up during the first month. Therefore, the entry should be to debit Rent Expense for $3,500 (to recognize the expense incurred) and to credit Prepaid Rent for $3,500 (to reduce the prepaid asset to its remaining balance). Choice C reflects this entry.

On July 1, Runner's Sports Store Paid $14,000 to Corona