On December 1,2011,Fleet Company paid $30,000 for three months rent and debited prepaid rent for $30,000; the rent payment was for three was for three months beginning December 1,2011.Prepare Fleet's adjusting entry required on December 31,2011.

Question

Quizplus · Accepted Answer

As of December 31, 2011, one month of the rent period has passed, so Fleet Company needs to recognize the rent expense for the month of December. The monthly rent is $30,000 divided by 3 months, which equals $10,000 per month.
The adjusting entry required on December 31, 2011, would be to record the rent expense for one month and reduce the Prepaid Rent account accordingly. Here is the journal entry:
Date: December 31, 2011
Debit: Rent Expense $10,000
Credit: Prepaid Rent $10,000
 To record rent expense for the month of December and reduce the prepaid rent asset.
This entry reflects that $10,000 of the Prepaid Rent has now been used up, and it moves that amount from the balance sheet (where Prepaid Rent is reported) to the income statement (where Rent Expense is reported), thus matching the expense with the period in which it was incurred, in accordance with the matching principle of accounting.

On December 1,2011,Fleet Company Paid $30,000 for Three Months Rent