Question

On November 1, 20X1, Starbucks paid the rent of $90,000 for 40 of its stores in Colorado and Nebraska. The rent covers the period, November 1, 20X1 through March 31, 20X2. Assuming that Starbucks prepares quarterly financial statements, how much rent expense does Starbucks record on (i) November 1 and (ii) December 31?

Answer 1

Answer:

Part (1) November 1

The amount paid is the rental advances and must be recorded as advances which falls under the current asset category:

Dr Rental Advances $90,000

Cr        Bank account             $90,000

Part (2) December 31

On this date, some of the rental advances paid would be realized as expenses from the period November 1, 20X1 to December 31, 20X2.

This time duration constitutes to 2 months and the rental advance made on November were for five months. Out of these 5 months, 2 months share must be recognized as expense which is

The relevant entry would be:

Dr Rental Expenses $36,000

Cr                Rental Advances $36,000