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:  

Prepaid Rent Unearned Revenue	Rent Expense Rent Revenue
Prepaid Services Unearned Revenue	Service Expense Service 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 and B please

Answer 1

Answer

• Note:
  Nominal accounts include: Revenue accounts , expense accounts.
  Real accounts include: Assets, Liabilities account.
• Adjustment [A]

--Rent expense (nominal account) was debited on May 1 for 18 months rent.
--No. of month expired since 1^st May to 31st Dec = 8 months.
--hence, for excess 10 months, Rent Expense is to be credited.

Date	Accounts title	Debit	Credit
31-Dec	Prepaid Rent	$10,000
	Rent Expense ($180000 x 10 months / 18 months)		$10,000

• Adjustment [B]

--Unearned Revenue (Real account) was credited on Aug 1^st when amount was received in advance.
--No. of month till 31 Dec since then = 5 months [Aug, Sept, Oct. Nov, Dec]
--Hence, 5 month service revenue earned is to be adjusted.

Date	Accounts title	Debit	Credit
31-Dec	Unearned Revenue	$100,000
	Service Revenue ($120000 x 5 months / 6 months)		$100,000