On September 1, 2018, Real Estate Professionals, Inc. paid $7,000 in advance for an eight-month rental space covering the period of September 1, 2018 through April 30, 2019. The deferred expense was initially recorded as an asset. The company makes adjusting entries once a year at year-end. The adjusting entry on December 31, 2018 would include a ________.

Question

Quizplus · Accepted Answer

The adjusting entry on December 31, 2018 would involve recognizing the portion of rent that has been used up during the year. Since the total rental period is for eight months, four months (September-December 2018) have already passed, and four months' worth of rent expense should be recognized at year-end. Therefore, the adjusting entry should include a debit of $3,500 to Rent Expense and a credit of $3,500 to Prepaid Rent ($7,000/8 months x 4 months = $3,500). Option C is the correct choice.