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

Answer 1

Rent expense from May 1st to December 31st = $180,000 X 8/18 = $80,000

Remaining balance in prepaid rent = $180,000 - $80,000 = $100,000

Service revenue earned from August 1st to December 31st = $120,000 X 5/6 = $100,000

A	Prepaid rent	$100,000	-
	Rent expense	-	$100,000
B	Unearned revenue	$100,000	-
	Service revenue	-	$100,000