Answer:
Life, Inc.
A. Recording the events under the accounting equation:
Debit Cash Account (Assets) $22,000
Credit Service Revenue (Equity) $22,000
To record the receipt of cash for counseling services performed.
Debit Prepaid Rent (Assets) $18,000
Credit Cash Account (Assets) $18,000
To record the payment of cash for office space.
Debit Rent Expense (Equity) $16,500
Credit Prepaid Rent (Assets) $16,500
To record the rent expense for the year.
B. Life, Inc. Income Statement for the year ended December 31, 2018:
Service Revenue $22,000
Rent expense 16,500
Net Income $5,500
C. The amount of rent expense to be recognized in 2019 is $18,000.
Explanation:
a) Data and Calculations:
Service Revenue = $22,000
Prepaid Rent = $18,000 (from February 1, 2018 to January 31, 2019)
Rent Expense for 2018 = $16,500 ($18,000 * 11/12)
b) The accounting equation is Assets = Liabilities + Equity. The equation shows that every business transaction affects the assets, liabilities, and equity. This is why it is always in balance with every given transaction.
