Prepaid Rent—Quarterly Adjustments
On September 1, Northhampton Industries signed a six-month lease for office space, which is
effective September 1. Northhampton agreed to prepay the rent and mailed a check for $12,000
to the landlord on September 1. Assume that Northhampton prepares adjusting entries only four
times a year: on March 31, June 30, September 30, and December 31.
1. Compute the rental cost for each full month.
2. Prepare the journal entry to record the payment of rent on September 1.
3. Prepare the adjusting entry on September 30.
4. Assume that the accountant prepares the adjusting entry on September 30 but forgets to record
an adjusting entry on December 31. Will net income for the year be understated or overstated?
by what amount?