Question

On May 1, Year 1, Garcia Company paid $1,200 for 12 months of rent and recorded the transaction in an income statement account. The adjusting journal entry required on December 31, Year 1, will require a

a)debit to prepaid rent $400.
b)credit rent expense $800.
c)credit prepaid rent $400.
d)debit rent expense $800.
e)debit rent expense $400
f)credit rent expense $400

Answer 1

The adjusting journal entry required on December 31, Year 1, will be a debit to rent expense $400 and a credit to prepaid rent $400.

Step-by-step explanation:

The adjusting journal entry required on December 31, Year 1, will be a debit to rent expense $400 and a credit to prepaid rent $400.

When Garcia Company paid $1,200 for 12 months of rent on May 1, Year 1, they recorded the transaction in an income statement account. Since the rent was prepaid for 12 months, each month expenses need to be recognized by adjusting entries. As of December 31, Year 1, 8 months of rent have already been used up (May, June, July, August, September, October, November, and December), so the adjusting entry would be to debit rent expense $400 (8 months x $100 per month) and credit prepaid rent $400.