Question about Pre-Paid Rent

USA Discussion in 'Exams and Studying' started by lifeisgreatwithblessings, Mar 20, 2018.

  1. lifeisgreatwithblessings

    lifeisgreatwithblessings

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    I am preparing for an exam at school and have a question about pre-paid rent.
    Why is the answer for the journal entry $300,000?
    I am getting $350,000 for the answer, because I assumed since the problem states October, that they would account for it starting in October.
    Are they just starting the "lease" period on January of the following year, and therefore, we only consider "2012", thus, half of $600,000 is $300000?

    Here is what they've given me from the problem and the question itself. I already have the answer, I'd just like to know "why", because it isn't what I'm getting. Conceptually, I'm missing something.

    Chart of Accounts for 2011: https://ibb.co/diRGqH

    The question: On October 1, 2011, $600,000 was paid for a 24-month operating lease for the building. The lease will be expensed evenly over the lease period.

    The answer to the journal entry:
    Debit Rent Expense: 300,000
    Credit Pre-Paid Rent: 300,000
     
    lifeisgreatwithblessings, Mar 20, 2018
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  2. lifeisgreatwithblessings

    Fidget VIP Member

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    You haven't said what the accounting year is. Presumably it's 1 Oct - 30 Sept? In which case it would be correct to expense 300,000 for that period.
     
    Fidget, Mar 21, 2018
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