Choice "D" is correct. When the cash payment was made, the company debited services expense for $90,000. The amount which will be expensed each month over the six month period is $15,000. Therefore, at the end of Year 1, the total correct expense for November ($15,000) and December ($15,000) would be $30,000. The expense for the next year is $60,000 (4 months × $15,000). The adjusting journal entry to ensure the expense account and prepaid accounts are stated correctly is the following:

Choice "c" is incorrect. Debiting prepaid services for $30,000 and crediting services expense for $30,000 would result in an overstatement of the services expense and understatement of prepaid services for Year 1.Choice "b" and "a" are incorrect. The adjusting journal entry must include a debit to prepaid services and credit to services expense to correctly adjust the services expense account and reflect the prepaid services asset for Year 2.