Question

The White Stripes Animal Encounters operates a drive through tourist attraction. The company adjusts its accounts at the end of each month. The selected accounts appearing below reflect balances after adjusting entries were prepared on April 30. The adjusted trial balance shows the following:

Prepaid Rent		$16,000
Buildings		30,000
Accumulated Depreciation—Buildings		6,600
Unearned Ticket Revenue		600

Other data:

1.		Three months’ rent had been prepaid on April 1.
2.		The buildings are being depreciated at $7,200 per year.
3.		The unearned ticket revenue represents tickets sold for future visits. The tickets were sold at $5.00 each on April 1. During April, thirty of the tickets were used by customers.

Calculate the following:

1.		Monthly rent expense.		$
2.		The age of the buildings in months.			months
3.		The number of tickets sold on April 1.			tickets

Prepare the adjusting entries that were made by the White Stripes Animal Encounters on April 30.

Answer 1

1. Since 3 months rent has been prepaid on 1^st April and books are closed on 30^th April. It means that 1 month rent has already been charged to P&L account and 2 months rent has been booked

in prepaid. Prepaid rent is $16,000. Hence rent per month is $8,000 ($16,000 / 2)

Entry on 1^st April:

Debit Rent A/c                               24,000

            To Cash/Bank A/c                          24,000

(Prepaid Rent paid on 1^st April for 3 months)

Debit P&L A/c                          8,000

Debit Prepaid rent A/c             16,000

         To Rent A/c                                24,000

(Rent charged to P&L and 2 months rent shifted in prepaid rent)     

2. Original book value for Building is $30,000 and it will be depreciated at $7,200 per year (hence $600 per month). At the end of 30^th April, balance in Accumulated depreciation account is $6,600 which means 11 months depreciation has been charged to P&L A/c (11*$600 = $6,600). Building has also been acquired on 1^st June due to which only 11 months depreciation has been computed.

Entry on 1^st June

Debit Building A/c                30,000

            To Cash/Bank A/c                          30,000

(Building purchased for $30,000)

Entry on 30^th April

Debit Depreciation A/c                                   6,600

            To Accumulated Depreciation A/c                          6,600

(Depreciation charged for 11 months at $600 per month)

Debit P&L A/c                                   6,600

            To Depreciation A/c                          6,600

(Depreciation charged to P&L A/c)

3. Since 30 tickets has been used in the month of April and still 120 tickets ($600 / 5) are not used, the revenue for this will be recorded as unearned revenue. Total 150 tickets has been sold on April 1.

Entry on 1^st April

Debit Cash/Bank A/c                750

            To Sale of tickets A/c                          750

(150 tickets sold @ $5 per ticket)

Entry on 30^th April

Debit Sale of tickets A/c                  750

            To P&L A/c                                         150

            TO Unearned revenue A/c                   600                  

(Revenue transferred to P&L and unused tickets to Unearned revenue)