Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 96

Prepaid expenses—rent

 (Note: See Problem 7.21 for the related unearned revenue accounting.) On November 1, 2010, Wenger Co. paid its landlord $25,200 in cash as an advance rent payment on its store location. The six-month lease period ends on April 30, 2011, at which time the contract may be renewed.Required:

a. Use the horizontal model or write the journal entry to record the six-month advance rent payment on November 1, 2010.

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b. Use the horizontal model or write the adjusting entry that will be made at the end of every month to show the amount of rent “used” during the month.

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c. Calculate the amount of prepaid rent that should be reported on the December 31, 2010, balance sheet with respect to this lease.

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d. If the advance payment made on November 1, 2010, had covered an 18-month lease period at the same amount of rent per month, how should Wenger Co. report the prepaid amount on its December 31, 2010, balance sheet?

Step 1 of 7

Prepaid expense––Rent

Prepaid expense: Prepaid expenses are treated as assets that turn into expenses as they get used up or expired.

Rent: Rent expense is a payment made by the company for using leased building for its business running.