Answer:
c. Debit Rent Expense, $2,500; Credit Prepaid Rent, $2,500
Explanation:
When the company pays $10,000 for four months of advance rent, it records the prepaid rent in an asset account named Prepaid Rent. The resulting journal entry is:
(Dr) Prepaid Rent, $10,000
(Cr) Cash, $10,000
With the passing of each month, the company <em>expires</em> one-fourth (1/4) of the prepaid rent expense (or $2,500), essentially reclassifying the expense from prepaid to expired. Therefore, after one month, the resulting journal entry is:
(Dr) Rent Expense, $2,500
(Cr) Prepaid Rent, $2,500
