On November 1 of the current year, Prepaid Rent was debited $5,400 for three months of rent, paid in advance. The amount of the adjusting entry on December 31 is:

Question

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Since the company paid rent in advance for three months, the Prepaid Rent account was debited for $5,400 on November 1. As of December 31, the company has used one month's worth of rent (November) and is still prepaying two months' worth of rent (December and January). Therefore, the adjusting entry on December 31 should be a debit to Rent Expense for one month of rent (1/3 of $5,400) or $1,800 and a credit to Prepaid Rent for the same amount. Therefore, the correct answer is B) $1,800.

On November 1 of the Current Year, Prepaid Rent Was