Question

QUESTION 32 This fact pattern provides information needed for Q#32-Q#34. On Mar. 1, Year 4. Wizard rented out some office space to another firm for one year starting on that date. The monthly rent on this space is $700 and the tenant was required to pay Wizard for all 12 months on the move-in date, Mar. 1, Year 4. The Wizard received the correct amount and Wizard's bookkeeping staff treated the entire amount received as Rent Revenue on Mar. 1, Year 4 (debiting Cash and crediting Rent Revenue). Nothing else has been done in Year 4 in the accounting ment island on thin rantalainesution instantan Click Save and Submit to move and submit. Click Save All Answers to save all answers. So F $ 4 % 5 & 7 6 8 E R т Y Y U O F G H. J K C V B N M

32

Answer 1

Hi

Step 1 : Analysing the given facts:

Rent received [700 x 12 = 8400] 9 Months Year 4 March to December 3 Months Year 5 Januray to March 700 x 9 = 6300 700 x 3 = 2100 To treat as year 4 revenue To treat as year 5 revenue

• 9 Months and 3 months has been bifurcated beacuse the fiscal year ends on 31st December.
• Since the 3 months rent received (i,e Januray to March -Year 5) in advance in the year 4, the amount of 3 months rent has to be classified as Liability under- "Rent received in advance"
• But the accounting team credited revenue account for the total 12 months. Thefore, the revenue account must be debited for 3 months rent in order to reduce the revenue and classify it as liability.
• Adjusting Journal entry would be :
  • Revenue Revenue account Dr 2100
    • To Rent received in advance Cr 2100.
• Conclusion : Therefore Rent revenue account has to be debited with 2100 (i.e enter 2 for debit)