Which journal entry reflects the adjusting entry needed on December 31?:In November, BOC prepaid $30,000 of rent for December, January, and February (and it was recorded properly). Now, it is December 31, the end of the fiscal year. 1 pointDr. Rent Expense 30,000 Cr. Prepaid Rent 30,000Dr. Rent Expense 10,000 Cr. Prepaid Rent 10,000Dr. Rent Expense 30,000 Cr. Cash 30,000Dr. Rent Expense 10,000 Cr. Cash 10,000No entry needed.
Question
Which journal entry reflects the adjusting entry needed on December 31?:In November, BOC prepaid $30,000 of rent for December, January, and February (and it was recorded properly). Now, it is December 31, the end of the fiscal year. 1 pointDr. Rent Expense 30,000 Cr. Prepaid Rent 30,000Dr. Rent Expense 10,000 Cr. Prepaid Rent 10,000Dr. Rent Expense 30,000 Cr. Cash 30,000Dr. Rent Expense 10,000 Cr. Cash 10,000No entry needed.
Solution
The correct journal entry that reflects the adjusting entry needed on December 31 would be:
Dr. Rent Expense 10,000 Cr. Prepaid Rent 10,000
Here's why:
The company prepaid 30,000 / 3 = $10,000.
By the end of December, one month's rent has been used up. So, we need to decrease the Prepaid Rent account by $10,000 and increase the Rent Expense account by the same amount to reflect that the company has 'used up' one month's rent.
This is done by debiting (Dr.) the Rent Expense account and crediting (Cr.) the Prepaid Rent account by $10,000.
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