On May 1, Brown's Antiques paid $18,000 for 12 months of advance rent on its store and immediately debited the asset account Prepaid Rent for the full amount. Select the adjusting entry made on December 31, to record the amount of rent that had expired.

Question

Quizplus · Accepted Answer

The adjusting entry made on December 31 should decrease the Prepaid Rent account and increase the Rent Expense account for the amount of rent that has expired, which is $12,000 (12/12 rent payments for the year). Therefore, option B is the correct choice, where Rent Expense is debited for $12,000, and Prepaid Rent is credited for $12,000. Option A records the entry in the opposite direction and overstates the asset balance. Option C records a wrong amount of rent expense, which will understate the expense and overstate the asset. Option D does not adjust the Prepaid Rent account and overstates both the asset and expense balances.

On May 1, Brown's Antiques Paid $18,000 for 12 Months