On January 10, 2012, A paid $2,100 rent for a storage facility for the period fr
ID: 2358124 • Letter: O
Question
On January 10, 2012, A paid $2,100 rent for a storage facility for the period from January 10 through May 31. The rent charge is $ 450 per month. Write the journal entry, to show the effect of: a. The January 10, 2012 rent payment assuming that the disbursement was recorded as an expense. b. The January 31, 2012 adjustment recorded to show the appropriate amount of expense in the income statement of Afor the month of January. c. Show an alternative way of recording the disbursement of $2,100 on January 12, 2010. d. Record the adjustment that would be appropriate at January 31, 2012 if the disbursement had been recorded as in c. e. What is the effect of the difference between the two methods of recording these items (a and b versus c and d) on the: 1. Income statement for the month of January? 2. Balance sheet at January 31?Explanation / Answer
a.) Debit Credit Cash.....................................................................2100 Rent expense.............................2100 c.) Cash.....................................................................2100 Prepaid rent...............................2100 d.) Expense....................................450 Prepaid rent............................................................450 e.) effect on income statement for case a.) whole amount of 2100 will be added as an expense in income statement to find Retained earning while in case c.) since on 31st jan only 450 is expense so it will be used to find out Retained earning Effect on balance sheet for case a.) 2100 is expense so it will reduce the retained earning side of the liabilties while for case c.) since expense is 450 only so retained earning will be more. In asset side we add prepaid account as new asset and write 2100-450 = 1650 in it.