Homework help-adjust entry

[sk85]

Homework help-adjusting entry

Hello,

I am having a bit of trouble with one of the adjusting entries on my homework. Any help would be greatly appreciated

So, on the homework, I have an unadjusted trial balance for the period ending December 31. The "rent expense" account has a debit balance of 7,200. There is no "prepaid rent" account at all. One of the problems that I have to do is an adjusting entry based on this information:

On April 1, the company moved into its first office space, and prepaid $7,200 rent for 12 months. Hint: first you need to determine if the company used a nominal or real account to record the prepayment of rent on April 1.

OK, so normally for an adjusting entry for prepaid rent I would debit "rent expense" and credit "prepaid rent." In this scenario I am a little confused by the fact that the $7200 that they prepaid for rent is already in the rent expense. Shouldn't it be in an account for prepaid rent instead? If I could get some guidance that would be great.Thanks!

 

[kirby]

The instructor is failing to make you THINK about what you are doing. So let's think. April 1st $7,200 was paid for the NEXT 12 months. So THINK on April 1st do you have a $7,200 rent expense? Answer is no. WHY?? Because that cost will be allocated over that 12 month period. So therefore that $7,200 was recorded as Prepaid Rent. A balance sheet account. Now THINK if the rent for 12 months is $7,200 how much is your monthly expense ?? $6,000. So at the end of December how many months have gone by since April 1?? So how much expense has been recorded. And therefore how much is left in Prepaid Expense.?? THINK!

 

[sk85]

Got it. You're right, I wasn't thinking enough I understand now and completed the assignment. Thank you!