Question

Suppose a company rents office space for one year, paying $36,000 ($3,000/month) in advance on September 1. Record the adjusting entry on December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

1. Record the adjusting entry on December 31

                               Dr.            Cr.

Rent Expense      $12,000  

Prepaid Rent                       $12,000

Explanation:

Rent received in advance = $36,000

Expense accrued = 36,000 x (4/12) = $12,000

On December 31 the accrued expense of $ 12,000 is recorded, and adjusting entry will be posted with debit rent expense and credit prepaid rent accounts. Which will record the expense for 4 months and reduce the prepaid rent as 4 months have been passed.