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 Nominal 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: Unearned Rent Prepaid Rent Revenue Prepaid Services Revenue Rent Expense Revenue Service Expense Revenue Unearned Service *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.

Answer 1

Journal

Date	Account Title and Explanation	Debit	Credit
a	Prepaid rent	100,000
	Rent expense		100,000
	(To record prepaid rent)
b	Unearned revenue	100,000
	Service revenue		100,000
	(To record service revenue)

i)

On may 1, 2019, Rent of $180,000 was paid for 18 months.

Rent expense for 8 months of 2019 = 180,000 x 8/18

= $80,000

Prepaid rent on Dec 31, 2019 = 180,000 - 80,000

= $100,000

ii)

Service revenue for 6 months received = $120,000

Hence, service revenue for 5 months of 2019 = 120,000 x 5/6

= $100,000

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