On July 1 the Concord Gallery paid $3300 to Fairy Realty for 4 months rent beginning...

On July 1 the Concord Gallery paid $3300 to Fairy Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on August 31, the adjusting entry to be made by the Concord is

a. debit Prepaid Rent, $1650; credit Rent Expense, $1650.

b. debit Rent Expense, $1650; credit Prepaid Rent, $1650.

c. debit Rent Expense, $2475; credit Prepaid Rent, $825.

d. debit Rent Expense, $825; credit Prepaid Rent, $2475.

Expert Solution

Ans	b. debit Rent Expense, $1650; credit Prepaid Rent, $1650.
Explanation:
	On July 1, Company paid $3300 in advance for 4 months rent for the period July 1 to Oct 31, then entry passed on July 1 would have been as follows:-


	Date	Particulars	Debit	Credit
	July 1	Prepaid Rent	Dr.	$3,300
		Cash			$3,300
		(To record rent paid in advance)


	Th rent is for 4 months from July 1 to Oct 31 Upto August 31, 2 months have been expired, so we record rent for the period expired 3300*2/4 =$1650 as rent expense.


	Adjusting entry:-
	Date	Particulars	Debit	Credit
		Rent Expense	Dr.	$1,650
		Prepaid Rent			$1,650
		(To record rent expense for expired period)

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