Stancil Enterprises prepaid four months of office rent totaling $9,000 on October 1,2017.Assuming Stancil records deferred expenses using the alternative treatment,what would be the adjusting entry recorded on December 31,2017?

Question

Quizplus · Accepted Answer

The adjusting entry recorded on December 31, 2017 under the alternative treatment would be to debit Prepaid Rent and credit Rent Expense for $2,250. This is because Stancil prepaid rent for four months, which means that for each month, the expense should only be recognized as it is incurred. As of December 31, 2017, only two months have been incurred, which means that the remaining two months are still prepaid as of that date. Therefore, the prepaid rent account needs to be reduced by $2,250 (i.e., 2/4 x $9,000) and the rent expense needs to be increased by the same amount to reflect the expense incurred during the period.

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