Question

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (5) QUESTIONS: Magic Cleaning Services has a fiscal year end of December 31st. It is in its first year of operations. As of December 31, Magic has the following unadjusted trial balance Account Cash Accounts Receivable Supplies Equipment Accounts Payable Unearned Service Revenue Common Stock Retained Earnings Service Revenue Wage Expense Rent Expense Utilities Expense Debit S 430,900 $158,000 S111,000 S120,000 Credit S 45,900 S 113,600 S 100,000 S 649,200 S 48,600 S 18,000 S 6,200 S 16,000 S908,700 TOTALS S908,700 In addition, Magic has not yet adjusted for the following: 1. The equipment was purchased on March 1 of the current year. It has a 10-year life, 10% salvage value and Magic uses the double declining balance method for depreciation. Magic records depreciation to the nearest full month. 2. On March 1, Magic prepaid S18,000 for 12 months of rent on an office/warehouse. The original entry was recorded as Rent Expense 3. By December 31st, 60% of the services related to the Unearned Revenues had been performed. 4. Wages of $5,700 should be accrued and are scheduled to be paid on January 2. 5. Supplies of $33,000 were still on hand at year end. 6. Based on industry averages, it is estimated that 3% of the accounts receivable will prove to be uncollectible Required To record AJE #2, Magic should do which of the following to record the correct adjustment credit Prepaid Rent for $3,000 O debit Rent Expense for $15,000 O Debit Prepaid Rent for $15,000 credit Rent Expense for $3,000

Answer 1

D.credit rent expense for $3,000.

actual entry that should have been passed on march 1:

prepaid rent a/c	18,000
............To cash a/c		18,000

entry that has been passed:

rent expense a/c	18,000
.............To cash a/c		18,000

so the adjusting entry to be passed:

prepaid rent	3,000
...............To rent expense		3,000