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Mariana [72]
3 years ago
6

Assume that on November 1, 2019, a 3-month rent payment for $8,000 per month (for a total of $24,000) was made with respect to a

lease that the company entered into on that date as a tenant. The company took occupancy of the rented space immediately. The lease term will expire on January 31, 2020. The $72,000 payment was recorded as a debit to Prepaid Rent on November 1, 2019.
Required:
a) The adjusting entry on December 31, 2019, is as follows _________.
Business
1 answer:
ziro4ka [17]3 years ago
7 0

Answer:

a)

Rent Expense   Dr.$16,000

Bank                  Dr.$48,000

Prepaid Rent     Cr.$64,000

Explanation:

The company entered into lease on 1st November 2019 with rent of $8,000 per month. the company on 1st November 2019 recorded prepaid rent as follows; which is wrong

Prepaid Rent Dr. $72,000

Bank              Cr. $72,000

This is wrong entry as prepaid rent was overstated by ($72,000-$24,000 ) $48,000 and same like bank was understated by $48,000

The correct entry should have been like this as on 1st November 2019;

Prepaid Rent Dr. $24,000

Bank               Cr. $ 24,000

By 31st December 2019, two months rent have already accrued so prepaid rent should be credited by (8000*2+48,000 for additional amount recorded)

<em>So the rectifying entry is; as on 31st December 2019</em>

<em>Rent Expense   Dr.$16,000</em>

<em>Bank                  Dr.$48,000</em>

<em>Prepaid Rent     Cr.$64,000</em>

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