Question

The prepaid rent account has a balance of $10,000 representing 10 months of rent. Two months of time have transpired since the rent was prepaid. The adjusting entry to record the expired rent would be to:

a. Debit Prepaid Rent for $2,000
b. Credit Rent Expense for $2,000
c. Debit Rent Expense for $2,000
d. Credit Prepaid Rent for $2,000

Answer 1

The correct adjusting entry to record two months of expired prepaid rent, from a $10,000 balance covering 10 months, is to debit Rent Expense and credit Prepaid Rent for $2,000.

Step-by-step explanation:

The question pertains to the process of adjusting entries for prepaid expenses in accounting. When prepaid rent is initially recorded, it is recognized as an asset on the balance sheet. As time passes and the rent period expires, an adjustment is made to reflect the expense incurred for the period used. In this case, with a prepaid rent account balance of $10,000 covering 10 months, two months have expired which is equivalent to $2,000 of rent expense ($10,000 / 10 months = $1,000 per month; $1,000 per month x 2 months = $2,000).

The adjusting entry to record the expiration of rent for two months would be to debit the Rent Expense account to increase the expense and credit the Prepaid Rent account to decrease the asset. Thus, the correct answer is to:

1. Debit Rent Expense for $2,000
2. Credit Prepaid Rent for $2,000