Question

On January 1, the Sleepy Monk Coffee Shop paid $39,000 for a full year of rent beginning on January 1. The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts. If financial statements are prepared on January 31, the journal entry to record the adjustment would be:______
a. Debit Rent expense and credit prepaid rent for $1,500.
b. Debit Rent expense and credit prepaid rent for $18,000.
c. Debit prepaid rent and credit rent expense for $18,000.
d. Debit prepaid rent and credit rent expense for $1,500.

Answer 1

Answer:

Debit Rent expense and credit prepaid rent for $3,250.

Explanation:

When rent is paid in advance, cash is exchanged for another asset known as prepaid expense. This entry is recorded as

Debit Prepaid expense

Credit Cash account

As the rent is used up, the entries required are;

Debit Rent expense

Credit Prepaid expense

Hence as at January 31, rent expense incurred

= 1/12 × $39,000

= $3,250