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17 August, 05:20

Suppose Hoosiers, a specialty clothing store, rents space at a local mall for one year, paying $18,600 ($1,550/month) in advance on October 1. 3. Calculate the year-end adjusted balances of prepaid rent and rent expense (assuming the balance of Prepaid Rent at the beginning of the year is $0).

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  1. 17 August, 07:01
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    Debit Rent expense $4,650

    Credit Prepaid account $4,650

    Explanation:

    The rental income received in advance affects only assets side of the accounting equation. As cash was paid for another asset; prepaid insurance.

    When the cash was paid in advance on October 1,

    Debit Prepaid account $18,600

    Credit Cash account $18,600

    At year end (after 3 months), the rent expense would be

    = $1,550 * 3 = $4,650

    Year end entries required would be

    Debit Rent expense $4,650

    Credit Prepaid account $4,650
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