Question

On July 1 the Fisher Shoe Store paid $18,000 to Acme 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 Fisher Shoe Store is:A)debit Rent Expense, $18,000; credit Prepaid Rent, $3,000.B)debit Prepaid Rent, $3,000; credit Rent Expense, $3,000.C)debit Rent Expense, $3,000; credit Prepaid Rent, $3,000.D)debit Rent Expense, $18,000; credit Prepaid Rent, $15,000.

Answer 1

Answer:

C)debit Rent Expense, $3,000; credit Prepaid Rent, $3,000.

Explanation:

The amount $18,000 is good for 6 months. That means that the monthly rent would be $3,000 (which is 18,000/6).

On July 31, one month of this prepaid rent has been used and should be recognized as a "Rent Expense" for one month which is $3,000

The credit would be "Prepaid Rent" since the balance of $18,000 should decrease by $3,000, which is the used portion of the prepaid rent.