Question

Swifty Corporation paid cash of $159000 on June 1, 2020 for one year’s rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2020 adjusting entry is

Answer 1

The correct adjusting entry is a credit to prepaid rent for half the value of the cash that was paid out on June, because by December, six months will have passed. And a debit to rent expense is made for the same value.

The adjusting journal entry is:

Account Debit Credit

Prepaid Rent $79,500

Rent Expense $79,500