Three Months Of Rent Were Prepaid On September 1 For $10,800, But Two Months Have Now Expired, Leaving Only One Month Prepaid At October 31. What Is The Amount Of Rent Expense That Will Be Recorded In The Related Adjusting Entry Dated October 31?

The correct answer of this multiple choice question (mcq) is C, as Rent Expense (RE) for two months is $7200 i.e., $3,600 + $3,600 = $7,200.

Explanation:

Rent (R) for 1 Month = Total Amount of R / 3 = $10,800 / 3 = $3,600

Here, we need to find out RE for 2 months from 1^st September to 31^st October, so

RE for 2 months = $3,600 X 2 = $7,20

So, the amount of $7,200 of RE will be recorded in the adjusting entry on 31^st October, which is shown below:

                                               RE a/c $7,200

                                                                      PR $7,200

                       (The portion of Prepaid Rent (PR) Which Had Expired Is Transferred To RE Account)

Initially, when the R is prepaid i.e., not expired on 1^st September and we paid advance rent, then, we record the following entry on 31^st October, as shown below:

                                    PR a/c  $10,800

                                                  Cash a/c $10,800

                                     (R Paid In Advance For Three Months)

On 31^st October, as we received the benefits of rent of the monetary value of $7,200 for 2 months by using office building, so deduct this portion from the total prepaid amount ($10,800) of rent. The remaining balance of $3,600 is carried down to the next month, November. Also, on 31^st October, the expired portion of PR ($7,200) is charged to RE account.

The ending balance of PR an on 31^st October is $3,600 while total rent expired charged to RE account as shown in the following T-Accounts:

                                                         PR T-Account

                                    For Two Months (September And October)

Date                                      $                 Date                                   $

Sep. 1    Cash                    10,800            Oct. 31       Rent             7,200  

                                                                 Oct. 31  Balance c/d       3,600

                                          _______                                              ________

 

Total                                   10,800            Total                              10,800

                                          ________                                            _________

                                          ________                                            _________

                                               RE T-Account

                          For Two Moths (September And October)

Date                                        $                 Date                                  $

Oct. 31          PR                 7,200              Oct. 31   Balance c/d     7,200  

                                                                

                                          _______                                              _______

 

Total                                    7,200            Total                               7,200

                                           ________                                             ________

                                           ________                                             ________

 The other options A, B and D are incorrect choices of this mcq.