Q 6SE-2 - Horngren'S Financial And Managerial Accounting

Question

On September 1, Big Fan of Toledo prepaid six months of rent, $3,300. Requirements 1. Record the journal entry for the September 1 payment. 2. Record the adjusting entry required at September 30. 3. Using T-accounts, post the journal entry and adjusting entry to the accounts involved and show their balances at September 30. (Ignore the Cash account.) 

Step-by-Step Solution

Answer

Journal entries are as follows:

Date	Accounts and Explanation	Debit	Credit
September 30	Rent Expense	$550
	Prepaid Rent		$550
	To record rent expense

Step-by-Step Solution Step 1: Explanation on Prepaid Rent

Prepaid rent indicates the advance amount of rent paid by the entity.

Step 2: Calculation of Rent Expense

Rent expense is calculated as follows: 

$$\begin{gathered} \mathbf{RentExpense}\mathbf{=}\mathbf{AmountPaid}\mathbf{\times }\frac{\mathbf{MonthsExpired}}{\mathbf{NumberofMonthsPaidFor}} \\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{300}\mathbf{\times }\frac{\mathbf{1}}{\mathbf{6}} \\ \mathbf{=}\mathbf{\$}\mathbf{550} \end{gathered}$$