On a company's Unadjusted Trial Balance at December 31 2004, there is a Prepaid Expenses balance of $15,600.

On March 1 2002, the company prepaid $36,000 for a three-year rental lease with occupancy commencing on the payment date. The remaining balance in the prepaid expenses account pertains to a two-year fire insurance policy purchased on April 1 2004.

Question: What will be the net adjustment to the prepaid expenses account on the December 31 2004 Adjusted Trial Balance?

Without all the facts it is not possible to answer. We are expected to believe at first glance that 31st December is the balance date. If 31st December is the balance date then the balance should consist of $14,000 for the rental and $1,600 for the insurance. That being so the adjusting entry will be for $12,600