On September 1, 2014, Joy Company paid $8,000 in advance for an 8-month rental space covering the period of September, 2014 through April, 2015. The prepaid expense was initially recorded as an asset. Joy makes adjusting entries once a year at year-end. The adjusting entry on December 31, 2014 would include a:
A)debit of $8,000 to Cash.
B)credit of $8,000 to Prepaid Rent.
C)debit of $4,000 to Rent Expense.
D)credit of $4,000 to Rent Expense.

Question

Quizplus · Accepted Answer

The adjusting entry would recognize the rent expense for the period from September to December (4 months), which is $4,000 ($8,000/8 months * 4 months). This would be recorded as a debit to Rent Expense.

On September 1, 2014, Joy Company Paid $8,000 in Advance