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: Unearned Rent Prepaid Rent Revenue Prepaid Services Revenue Rent Expense Revenue Service Expense Revenue Unearned

Answer 1

Question 1:

Transaction A: Previously rent expense is debited. So, this expense is for 18 months. Expense relating to up to december is to be taken in to income statement. So only for 8 months rent is debited. to reduce the previous debit, now credit the rent expense.

Transaction B: Real account is credited previously. So, Now debit the real account of Unearned revenue with 5 months services. and credit the Service Revenue.

Question 2:

The amounts to be entered in the boxes are to be calculated for both Transaction A+B

The attachment shows the cumulative balance to be entered in the table.

Adjustment Entry Transaction A Account Title Debit Credit Prepaid Rent 1,00,000 Rent Expense 1,00,000 (Being rent for 8 months is expired. From May to december is 8 months For 18 months 1,80,000. For remaining 10 months, 180000*10/18=100,000) Transaction B Account Title Debit Credit Unearned Revenue 1,00,000 Service Revenue 1,00,000 (Being from august to december 5 months service provided. For each month 120,000/6 =20,000 per month. For 5 months = 5*20,000=100,000.) Equity Cummulative Effect of errors Assets Liabilities Transaction A U100000 Transaction B 0100000 Total U100000 0100000 Net Income U100000 U100000 U200000 Enter this amounts in your table NE