Final answer:
To adjust the prepaid rent on December 31, divide the prepaid amount by the number of prepaid months to find the monthly rent. Then, make an adjusting entry debiting Rent Expense and crediting Prepaid Rent for one month's utilization.
Step-by-step explanation:
The question involves understanding the adjusting entry for prepaid rent in accounting at the end of a financial period. On December 1, a prepaid rent payment of $15,000 was made for three months. By December 31, one month of rent has been used, leaving two months still prepaid.
The adjusting entry on December 31 would involve recognizing one month's rent as an expense. To find the monthly rent, you would divide the total prepaid amount by three. That would result in a monthly rent of $5,000 ($15,000/3). Therefore, the adjusting entry on December 31 would be to debit Rent Expense for $5,000 and to credit Prepaid Rent for $5,000, reflecting the expense for one month's rent.
This entry recognizes $10,000 of rent expense for the two months (January and February) that haven't been used up yet, and reduces the prepaid rent account by the same amount.