Determination of the Correct Dollar Amounts Accounting

Adjusting Journal Entries: [181280Q4020218]

On Jan. 1, Year 3, BUAD Company had a proper balance in Rent Payable of $5,600 as a carryover from the prior year’s balance sheet. BUAD had leased an office on June 1, Year 2, at a cost of $800 per month. BUAD began using the office immediately on that date. The agreement required BUAD to pay for the entire one-year lease at the end of the lease term, June 1, Year 3.

When this one-year lease term expired on June 1, Year 3, BUAD renewed the lease as a monthly rate of $900 and agreed to pay for the new lease in full on June 1, Year 3. [This payment was in addition to the payment required at the end of the first year’s lease covering the first year’s use.]

BUAD paid the landlord a check for $20,400 on June 1, Year 3, covering both years’ rent in full as required according to the agreements. The firm recorded this payment on June 1, Year 3, as a debit to Rent Expense and credit to Cash both for $20,400.

Required: Show the proper [AJE] at Dec. 31, Year 3, the end of BUAD’s fiscal year.

Debit or Credit Account Title Amount

Jan 1 year 3

Debit Rent expense 5600

Credit Rent payable 5600

June 1 year 3

Debit Rent expense 20400

Credit Cash 20400

Dec 1 year 3

Debit Prepaid rent 5400

Credit Rent expense 5400

Quiz continued on next page.

Articulation Exercise: [181280Q4020218]

Listed below are selected account balances for Merle Corporation at December 31, Year 2 and Year 1. Also available for you is selected information from the income statement for Merle for the year ended December 31, Year 2.

Selected balance sheet accounts: Year 2 Year 1

Assets:

Accounts Receivable $21,000 $24,000

Prepaid Salaries 3,000 6,000

Property, Plant & Equipment 227,000 215,000

(Accumulated Depreciation) (156,000) (141,000)

Investments 210,000 70,000

Liabilities & Stockholders’

Equity:

Salaries Payable 11,000 5,000

Notes Payable 19,000 26,000

Dividends Payable 4,000 2,000

Contributed Capital 34,000 29,000

Retained Earnings 104,000 88,000

Selected income statement information for the year ended December 31, Year 2:

Sales revenue $115,000

Depreciation 23,000

Salaries Expense 68,000

Gain on sale of equipment 9,000

Loss on sale of investments (5,000)

Net income 19,000

Additional information:

1. During Year 2, equipment costing $25,000 was sold for cash.

2. During Year 2, $25,000 of Notes Payable were issued in exchange for Property, Plant and Equipment. This involves an exchange of Notes Payable for Property, Plant and Equipment.