Question

You've been hired by Desert Company to review several transactions that were omitted as Adjusting Entries at December 31, 2019, as the bookkeeper was new and uncertain on how to record them. For each of the transactions listed below, record the appropriate AJE that would have been required at December 31st. Transactions: A. On May 1st, 2019, Desert paid $180,000 in advance for 18 months rent on its new warehouse. At the time, Desert debited a ominal Account. B. On August 1st, 2019, Desert received $120,000 cash in advance for services to be provided over the next 6 months. At the time, Desert credited a Real account. For your account titles, choose from: Prepaid Rent Unearned Rent Expense Rent Revenue Revenue Prepaid Services Revenue Service Expense Service Unearned Revenue *Because Canvas is very sensitive in grading your responses, copy & paste from these account titles to ensure your answer is not counted wrong for an abbreviation or typo. The dollar amount does not need to include a dollar sign or comma. AJE for Transaction A: Date Account Title Debit # Credit # 80000 12/31 Prepaid Rent 80000 Unearned Revenue

These are both part of the same question. I got partial credit (.5/2) for both so I am unsure what is right and whats wrong. need help figuring out correct account title and debit/credit amounts. Thank you.

Answer 1

Answer:

Transaction A:

From May to Dec = 8 months

Per month rent = 180000 / 18 = $10,000 per month.

The question says that when Desert paid $180,000 on May 1, Desert debited nominal accounts which means Rent Expense Account was debited.

Unexpired period = 18 - 8 = 10 months

Prepaid rent for unexpired period = 10 * 10000 = $100,000

So in adjusting entry, we have to debit 'Prepaid Rent' and credit 'Interest Expense' rent amount for the unexpired period

So the adjusting entry will be:

Date Credit # Account Title Prepaid Rent Rent Expense Debit # 100000 12/31 100000

Transaction B:

Aug to Dec = 5 months

On Aug 1, 2019 advance of $120,000 for 6 months received and the amount was credited to real account (means 'Únearned Revenue' account)

Per month revenue = 120000 / 6 = $20,000

Revenue to be recognized for 5 months = 20000 * 5 = $100,000

The adjusting entry will be:

Credit # Date 12/31 Account Title Unearned Revenue Service Revenue Debit # 100000 100000