Final answer:
To record the adjusting entry for prepaid rent on December 31, debit the Rent Expense account and credit the Prepaid Rent account for the amount of rent used, which is $5,000 for four months.
Step-by-step explanation:
The student question pertains to recording an adjusting entry for prepaid rent expenses in accounting. On September 1, the company paid $15,000 in advance for one year of office space, equivalent to $1,250 per month. By December 31, four months of the prepaid rent have been used, totaling $5,000 ($1,250/month x 4 months). The adjusting entry on December 31 should reflect this amount as rent expense, reducing the prepaid rent asset accordingly.
Adjusting Entry on December 31
- Debit: Rent Expense - $5,000
- Credit: Prepaid Rent - $5,000
This entry recognizes the cost of the rent for the period that the office space was used and ensures that the company's financial statement accurately presents the expense and the remaining prepaid rent asset.