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A business prepays $12,000 on 1 June for 12 months of rent and records it as Prepaid Rent. What is the month-end adjusting entry at 30 June?
ADebit Rent Expense $1,000; credit Prepaid Rent $1,000
BDebit Rent Expense $12,000; credit Prepaid Rent $12,000
CDebit Prepaid Rent $1,000; credit Rent Expense $1,000
DDebit Rent Expense $11,000; credit Prepaid Rent $11,000
Answer & Solution
Correct answer: A. Debit Rent Expense $1,000; credit Prepaid Rent $1,000
1. One month's rent has expired: $12{,}000 \div 12 = 1{,}000$.
2. Rent Expense increases (debit $\$1{,}000$); Prepaid Rent decreases (credit $\$1{,}000$).
3. Therefore A is correct.
4. B expenses the full year at once; D uses the $\$11{,}000$ unexpired amount; C reverses the correct entry.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.3.1 "Prepaid Rent—Deferred Expense", p.66_
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