Question

On November 1, 2019, Wenger Co. paid its landlord $31,800 in cash as an advance rent payment on its store location. The six-month lease period ends on April 30, 2020, at which time the contract may be renewed.

Answer 1

Continuation

a. Prepare the horizontal model to record the six-month advance rent payment on November 1, 2019. (+ for increase and – for decrease).

b. Prepare the journal entry to record the six-month advance rent payment on November 1, 2019

c. Prepare the horizontal model that will be made at the end of every month to show the amount of rent "used" during the month. (+ for increase and – for decrease).

d. Prepare the adjusting entry that will be made at the end of every month to show the amount of rent "used" during the month.

e. Calculate the amount of prepaid rent that should be reported on the December 31, 2019, balance sheet with respect to this lease.

Answer:

a.

Assets

Cash: -$31,800

Prepaid Rent: +31,800

b.

Date. General Journal Debit (Dr) Credit (Cr)

November 01, 2019. Prepaid Rent. $31,800 (dr)

Cash. $31,800 (Cr)

c.

The rent during the month = $31,800/6 = $5,300

Assets. -------------- Expense

Prepaid Rent: -$5300. --------------- Rent Expense: +$5,300

d.

The rent during the month = $31,800/6 = $5,300

Event --------- General Journal ------ Debit (dr) ---- Credit (Cr)

1. -------- Rent Expense. ---- $31,800

--------- Prepaid Rent. -------- ------ $31,800 (Cr)

e.

At the emd of December, 2 months has already expired.

So, he has used 2/6 of his rent.

2/6 of $31,800

= $10,600

The remaining which is 4/6 will be the prepaid rent that will be entered in the balance sheet as the current assets.

The 4/6 is calculated as:.

4/6 * $31,800

= $21,200