Question

On December 31, Jacoby 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:_________
A. Debit Rent Expense $6,000; credit Accounts Payable $6,000.
B. Debit Rent Expense $2,000; credit Accounts Payable $2,000.
C. Debit Prepaid Rent $6,000; credit Cash $6,000.
D. Debit Cash $2,000; credit Prepaid Rent $2,000.
E. Debit Rent Expense $2,000; credit Prepaid Rent $2,000.

Answer 1

Answer:

E. Debit Rent Expense $2,000; credit Prepaid Rent $2,000.

Explanation:

Rent paid in advance of 3 months on 1 December is $6000.

Monthly amortization required = $6000/3

= $2000

Entries required then would have been;

Debit Prepaid rent account $6000

Credit Cash account $6000

At at 31 December, amortization required for the month of December

Debit Rent expense $2000

Credit Prepaid rent account $2000

The amortization would be recognized in the rent expense account for each month of use to reduce the prepaid rent account balance.