On December 31,Jacoby Company's Prepaid Rent account had a balance before adjustment of $6,000.Three months' rent was paid in advance on December 1,the first day of the lease term.The adjusting entry needed on December 31 is:

Question

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The adjusting entry needed on December 31 is to reduce the Prepaid Rent account and record the amount of rent that has been used up or expired as Rent Expense. Since three months' rent was paid in advance, one month of rent has expired by December 31 (December 1 to December 31). Therefore, the adjusting entry should debit Rent Expense for $2,000 and credit Prepaid Rent for $2,000. Option A is incorrect because it would simply reverse the initial entry that was made when the prepaid rent was paid, and it does not reflect the portion that has been used up or expired. Option B is incorrect because it records the payment of rent instead of the expired portion. Option D is incorrect because it records a payment of $2,000 instead of the expired portion of $2,000. Option E is incorrect because it records the payment of rent instead of the expired portion.

On December 31,Jacoby Company's Prepaid Rent Account Had a Balance