Final answer:
The adjusting entry for recognizing one month's worth of earned rent revenue from a $12,000 prepayment is to debit Unearned Rent for $1,000 and credit Rent Revenue for $1,000 as of December 31.
Step-by-step explanation:
The question relates to accounting principles and the preparation of adjusting entries at the end of an accounting period. When a company receives payment for services to be provided in the future, the amount received is initially recorded as a liability on the balance sheet under the account unearned revenue. As the service is provided over time, this liability decreases and is recognized as income. On December 1, the company received $12,000 for 12 months' rent, which means at the end of December, they have earned one month of rent revenue.
The adjusting entry at December 31 would be to recognize that one month of rent has now been earned. To do this, you would debit the Liability account 'Unearned Rent' to reduce it by the amount earned, and you would credit the Income account 'Rent Revenue' to reflect the earned revenue.
The adjusting entry would be:
Debit: Unearned Rent $1,000
Credit: Rent Revenue $1,000
This entry reflects that $1,000 of the prepaid rent is now recognized as revenue for the month of December, and the liability 'Unearned Rent' is reduced accordingly.