In: Accounting
Panda Corporation paid cash of $7470 on the last day of the 7th month of 2014 for two year’s rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2014 the adjusting entry should accomplish a reduction in assets of how much?
Rent from 7th month of 2014 to 12th month (December) of 2014 = 6 months
Rent Paid = $ 7470 for 2 years = $ 7470 for 24 months
Rent for 7th month of 2014 to 12th month of 2014 = 7470 * 6 / 24
= $ 1867.50
The December 31, 2014 the adjusting entry should accomplish a reduction in assets of $ 1867.50
THerefore, entry should be
Rent Expense..............Dr 1867.50
Prepaid Rent .............Cr 1867.50