Question

On January 1, Mountbatten Corporation paid $18,000 for a year's advance rent on a building and recorded it as Rent Expense. The rental period begins on January 1. When financial statements are prepared on March 31, the adjusting entry should include ________. (Do not round intermediary calculations. Only round your final answer to the nearest dollar.)

a. a credit to cash for $13,500
b. a crdit to rent expense for $13,500
c. a credit to prepaid rent for $4,500
d. a debit to rent expense for $4,500

Answer 1

b. a credit to rent expense for $13,500

Step-by-step explanation:

The computation is shown below:

Since there is an advance rent for $18,000 on Jan 1 and the adjusting entry would be made on March 31

So, the amount would be

= $18,000 - $18,000 × 3 months ÷ 12 months

= $18,000 - $4,500

= $13,500

This amount i.e $13,500 would be credited to rent expense

Hence, the second option is correct