Question

On January 1 of the current year, Cruella Company paid $1,500 rent to cover six months (January through June). Cruella recorded this transaction as follows: Journal Entry Date Accounts Debit Credit Jan 1 Prepaid Rent 1,500 Cash 1,500 Cruella's adjusting entry at the end of February included a debit to Rent Expense in the amount of $250. What effect does the adjusting entry have on Cruella's net income for February? A. increase by $500 B. decrease by $250 C. increase by $250 D. decrease by $500

Answer 1

SOLUTION : 1
		Calculation of monthly rent expenses
		Advance Rent Paid	$                     1,500
		Divide By :	"/" By
		No. of Months for rent paid	6 Month
		Per month Rent Expenses = $ 1,500 / 6 Months =	$                         250	Per month
		Adjusting entry of the same at the end of Feb Month is done as below
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Feb.28	Rent Expenses	$                         250
		Prepaid Rent		$                      250
	It means we recorded the rent expenses of $ 250 and reduces our current Assets (Prepaid Rent).
	This adjusting entry is increases our expenses it means net income will decrease by $ 250
	Answer = Option B = Decrease by $ 250