On December 31,Winters 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 recognize the portion of prepaid rent that has been used up (i.e. rent expense). Since three months' rent was paid in advance on December 1, one month's rent has already been used up by December 31 (i.e. 1/3 of $6,000 = $2,000).

Therefore, the appropriate adjusting entry is to debit Rent Expense for $2,000 and credit Prepaid Rent for $2,000. Option C is the correct choice as it reflects this entry. Option A is incorrect because it does not recognize any portion of the prepaid rent that has been used up. Option B and E are incorrect because they involve Accounts Payable which is not relevant to this situation. Option D is incorrect because it debits Cash, but the cash was already paid on December 1 and no further cash payment is necessary for this adjusting entry.

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