Question

Prepaid Rent. On September 1 of the current year, the company prepaid $44,400 for two years of rent for facilities being occupied that day. The company debited Prepaid Rent and credited Cash for $44,400.Prepaid Rent
Step 1: Determine what the current account balance equals.

Step 2: Determine what the current account balance should equal.

Step 3: Record the December 31 adjusting entry to get from step 1 to step 2

Answer 1

Explanation:

The computation is shown below:

a. The current account balance equal to $44,400

b. The current account balance equal to

Since the company prepaid rent for two years is $44,400 but we have to compute four four months i.e from September 1 to December 31

We assume the books are closed on December 31

So, the current account balance is

= $44,400 - $7,400

= $37,000

The $7,400 is come from

= $44,400 × 4 months ÷ 24 months

= $7,400

c. And, the adjusting entry is

Rent expense A/c Dr $7,400

            To Prepaid rent A/c $7,400

(Being rent expense is recorded)