On April 1 the ABC Inc. paid $20,400 to Acme Realty for 12 months Rent beginning May 1. The company did the correct recording on April 1. If financial statements are prepared on December 31st, what is the adjusting entry needed on the balance sheet? Decrease PrePaid Rent 20,400 / Increase Rent Expense 20,400

Decrease PrePaid Rent 13,600 / Decrease Rent Expense 13,600

Decrease PrePaid Rent 13,600 / Increase Rent Expense 13,600

Decrease Cash 20,400 / Increase PrePaid Rent 20,400

Decrease PrePaid Rent 13,600 / Increase Rent Expense 13,600

Step-by-step explanation:

Given that:

The total amount paid = $20400  to Acme Realty for 12  months;

Thus, for each month rent; we get = $20400/12 = $1700

Now, the moth expired from May 1 to Dec 31 = 8 months

The rent expense for the year will be: monthly rent × number of months

= 1700 × 8

= $13,600

Thus, the balance sheet's adjusting entry will be to record 13,600 as the expense and decrease the total 20400 rent paid with 13600 and book it as prepaid rent as of December end.

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