On December 31, the Human Bean Coffee Shop paid $39,000 for a full year of rent

Question

On December 31, the Human Bean Coffee Shop paid $39,000 for a full year of rent beginning on January 1. The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts. If financial statements are prepared on January 31, the journal entry to record the adjustment would be:

Debit prepaid rent and credit rent expense for $3,250.

Debit prepaid rent and credit rent expense for $39,000.

Debit Rent expense and credit prepaid rent for $3,250.

Debit Rent expense and credit prepaid rent for $39,000.

Explanation / Answer

Human Bean Coffee Shop has paid $39,000 for a full year of rent beginning on January 1. The journal entry to be passed to record the adjustment on January 31 will be :

Debit Rent expense and credit prepaid rent for $3,250.

The amount of $3250 is obtained through ($39000/12) to obtain monthly rental amount.

Rent Expense is debited to recognize the rent expense of the month of January and reduce prepaid rent by $3250.

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