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On October 1, Arcelia Corp. pays $24,000 for two years of rent. The transaction is appropriately recorded in a prepaid rent account. On December 31, of the same year Arcelia should make an adjusting entry for the rent expired, which includes (Select all that apply.)

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Answer:

Arcelia should make an adjusting entry for the rent expired, which includes,

Rent Expense $3,000 (debit)

Prepaid Rent $3,000 (credit)

Explanation:

When Arcelia Corp makes payment for rent the entries are as follows :

Prepaid Rent $24,000 (debit)

Cash $24,000 (credit)

By the end of the Financial year, the 3 months rent out of 2 years rent (24 months) will have expired and the entries are as follows :

Rent Expense $3,000 (debit)

Prepaid Rent $3,000 (credit)

Rent Expenses = 3/24 × $24,000

                         = $3,000