On July 1, Runner's Sports Store paid $14,000 to Corona Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner s Sports Store is:

C) Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500.

Explanation:

The journal entry for July 1 was:

July 1, rent paid in advance for 4 months.

Dr Prepaid rent 14,000

Cr Cash 14,000

Since one month has passed, the prepaid rent account must be adjusted:

July 31, expense recognition of one month of rent.

Dr Rent expense 3,500 (=14,000 / 4)

Cr Prepaid rent 3,500

Since prepaid rent is an asset account, when it is credited it will decrease. Expense accounts all have a debit balance.

The question is incomplete. Choose fron the following;

A) Debit Prepaid Rent, $3,500; Credit Rent Expense, $3,500.

B) Debit Rent Expense, $14,000; Credit Prepaid Rent, $14,000.

C) Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500.

D) Debit Rent Expense, $14,000; Credit Prepaid Rent, $3,500.

Answer:

The answer is C) Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500.

Explanation:

The rent expense for the month ending July 31 was 14000 / 4 = $3500.