Just a review question from a study guide, but I have found out that some of the
ID: 2365678 • Letter: J
Question
Just a review question from a study guide, but I have found out that some of the answers that were given to me were wrong, so I just want to double check to make sure I'm studying the correct information.
Along with the answer, if you could write a brief explanation as well that would be a huge help. Thanks.
15. On July 1 the Winter Shoe Store paid $12,000 to Ace Realty for 6 months rent beginning July 1 Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Winter Shoe Store is a. Debit Rent Expense, $12,000; Credit Prepaid Rent, $2,000. b. Debit Prepaid Rent, $2,000, Credit Rent Expense, $2,000. c. Debit Rent Expense, $2,000, Credit Prepaid Rent, $2,000. d. Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000.Explanation / Answer
$12,000 was paid for 6 months rent. That's $2,000 per month. Here's the initial entry made on July 1(DR = Debit, CR = Credit): DR: Prepaid Rent $12,000 CR: Cash $12,000 On July 31, one month has passed so we need to expense $2,000, or one month's worth of rent. Like so: DR: Rent Expense $2,000 CR: Prepaid Rent $2,000 The answer is c. As each month passes, we make the same entry until the Prepaid Rent is used up. Hope that helps. Please rate. Thanks.
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