Question

1) Present, in journal form, the adjustments that would be made on July 31, 2018, the end of the fiscal year, for each of the following.

A. The supplies inventory on August 1, 2017 was $9,350. Supplies costing $24,150 were acquired during the year and charged to the supplies inventory. A count on July 31, 2018 indicated supplies on hand of $8,810.

B. On April 30, a ten-month, 6% note for $30,000 was received from a customer

C. On May 1, $20,000 was collected as rent for one year and a nominal (temporary) account was credited.

I have a question about C.

Answer said 20,000 *(9/12) = 15,000

Rent Revenue (Corrects for prior entry) 15,000

Unearned Rent Revenue 15,000

But Why do we have to use nine instead of three

Because I think May 1 - July 31 has three month

Answer 1

• You have ONLY asked for ‘Adjustment C’
• You are correct, but you are missing one of the main point of adjustment C which says that “ nominal (temporary)” account got credited (and not Permanent account – Unearned Rent Revenue)
• Now, this means that when Advance cash was received, Rent Revenue got CREDITED by $ 20,000 [Rent Revenue is the temporary account].
• You would have been correct with your 3/12 concept if “Unearned Rent Revenue” was credited.
• See, Rent Revenue got credited by $ 20,000 while in actual it should have been credited ONLY by the amount of 3 months rents.
• 3 month rent = $ 20000 x 3/12 = $ 5,000
• Rent Revenue should have been credited by $ 5,000 BUT in actual it got credited by $ 20,000
• This means that Rent Revenue git EXCESS Credited by $ 15,000 [20000 – 5000]
• This is why, to eliminate excess credit of $ 15,000, Rent Revenue got debited by $ 15,000 and Unearned revenue got credited.