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Concord Corporation paid cash of $121500 on June 1, 2020 for one year’s rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2020 adjusting entry is

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Answer: Debit Rent expense and credit Prepaid rent $70,875

Explanation:

Going by the Accrual principle of Accounting, expenses have to be recognized in the period they are due.

7 months of the rent fall into 2020 (June to December) so the prepaid rent has to be adjusted to reflect this;

= 121,500 * 7/12 months

= $70,875

The Prepaid Rent account will be reduced by $70,875 which means it will be credited.

The rent for the year being $70,875 will be debuted to Rent Expense to recognize it for the year.

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