Question

Exercise 3-49 (Algorithmic) Prepayments, Collections in Advance Greensboro Properties Inc. owns a building in which it leases office space to small businesses and professionals. During 2019, Greensboro Properties engaged in the following transactions: a. On March 1, Greensboro Properties pald $10,560 in advance to Patterson Insurance Company for 1 year of insurance beginning March 1, 2019. The full amount of ti prepayment was debited to prepaid insurance. b. On May 1, Greensboro Properties received $35,640 for 1 year's rent from Angela Cottrell, a lawyer and new tenant. Greensboro Properties credited unearned rent revenue for the full amount collected from Cottrell. c. On July 31, Greensboro Properties received $239,400 for 6 months' rent on an office building that is occupied by Newnan and Calhoun, a regional accounting firm. T rental period begins on August 1, 2019. The full amount received was credited to unearned rent revenue. d. On November 1, Greensboro Properties paid $4,800 to Pinkerton Security for 3 months' security services beginning on that date. The entire amount was debited to prepaid security services. Required: 1. Prepare the journal entry to record the receipt or payment of cash for each of the transactions March 1 Prepaid Insurance 10.560 Cash 10,560 (Record prepayment for insurance) May 1 Cash 35.640 → Unearned Rent Revenue 35.640 → (Record receipt of cash for rent)

Answer 1

25 Required: Prepare the journal entry to record the receipt or payment of cash for each of the transactions 26 27 Credit Debit 10,560 Date Account Title 01-Mar Prepaid Insurance Cash (Record prepayment for Insurance) 28 29 30 31 32 10,560 35,640 33 01-May Cash Unearned Rent Revenue (Record receipt of cash for rent) 35,640 34 35 36 239,400 37 31-Jul Cash Unearned Rent Revenue (Record receipt of cash for rent) 239,400 38 39 40 4,800 41 01-Nov Prepaid Security Services Cash (Record prepayment for Security Services) 4,800 42 43

46 44 Prepare the adjusting entries you would make at December 31, 2013, for each of these items. 45 Date Account Title & Explanation Debit Credit 47 31-Dec Insurance expense (10560/12*10) 8,800 Prepaid insurance 8,800 (To record insurance expense) 48 49 50 51 23,760 52 31-Dec Unearned Rent Revenue (35640/12*8) Rent Revenue (Record earned rent revenue) 23,760 53 54 55 199,500 56 31-Dec Unearned Rent Revenue (239400/6*5) Rent Revenue (Record earned rent revenue) 199,500 57 58 59 3,200 60 31-Dec Security Services expense (4800/3*2) Prepaid Security Services (Record use of Prepaid security services) 3,200 61

63 CONCEPTUAL CONNECTION What would be the total effect on the income statement and balance sheet if these entrie 64 65 a 66 b 67 C 68 d 69 Expenses would be understated and assets would be overstated. Revenues would be understated and Liabilities would be overstated. Revenues would be understated and Liabilities would be overstated. Expenses would be understated and assets would be overstated. 70 71 72 Revenues Expenses Net Income Assets Liabilities Retained Earnings Understated Understated Understated Overstated Over ated Understated by by by by by by 223,260 12,000 211,260 12,000 223,260 211,260 73 74 75 76 77