Janno Enterprises prepaid four months of office rent totaling $9,000 on October 1, 2019. The rent period begins on October 1. Assuming Janno records deferred expenses using the alternative treatment, what would be the adjusting entry recorded on December 31, 2019?

Question

Quizplus · Accepted Answer

Since Janno Enterprises prepaid four months of rent on October 1, 2019, the total rent expense was recorded as prepaid rent. As of December 31, 2019, two months (November and December) have passed and therefore, 2/4 or 50% of the prepaid rent has been used which equals to $4,500 ($9,000 x 50%). To reflect this change, Janno Enterprises needs to adjust its accounts by debiting Prepaid Rent for $4,500 and crediting Rent Expense for $4,500. Therefore, the adjusting entry would be Debit Prepaid Rent and credit Rent Expense for $2,250.00.

Janno Enterprises Prepaid Four Months of Office Rent Totaling $9,000