Concept explainers
To prepare:
- Payment to Mason for the right to sublease the building space
- Its payment of the 2015 annual rent
- Its payment for the office improvements
Answer to Problem 8BPSB
Solution:
The requirement journal entries are −
Accounts Titles and Descriptions | Debit | Credit | |
a. | Leasehold | 40,000 | |
Cash | 40,000 | ||
(To record the payment paid for sublease of the building space) | |||
b. | Prepaid Rent | 36,000 | |
Cash | 36,000 | ||
(To record the rent paid in advance for the year) | |||
c. | Leasehold Improvements | 20,000 | |
Cash | 20,000 | ||
(To record cost of leasehold improvements for $ 20,000) |
Explanation of Solution
The above journal entries can be explained as under −
Thus, the journal entries for Stewart for payment to Mason for the right to sublease the building space, its payment of the 2015 annual rent and its payment for the office improvements have been prepared.
Requirement 2
To prepare:
Adjusting journal entries to −
- To amortize the $ 40,000 cost of the sublease
- To amortize the office improvement
- To record rent expense
Requirement 2
Answer to Problem 8BPSB
Solution:
The required adjusting journal entries are −
Accounts Titles and Descriptions | Debit | Credit | |
a. | Rent Expense | 8,000 | |
Accumulated amortization - Leasehold | 8,000 | ||
(To record amortization of $ 40,000 cost of sublease) | |||
b. | Amortization expense - Leasehold Improvements | 4,000 | |
Accumulated amortization - Leasehold Improvements | 4,000 | ||
(To record amortization of leasehold improvements) | |||
c. | Rent Expense | 36,000 | |
Prepaid Rent | 36,000 | ||
(To record |
Explanation of Solution
The above journal entries can be explained as under −
- The amount paid for the right to sublease will be amortized using the remaining life of the asset and the months expired in the year 2015. Given,
- Amount paid for the right to sublease = $ 40,000
- Remaining life of lease = 5 years
- Months expired in 2015 = 12 months (i.e. from January to December) The amount to be amortized will be calculated as −
- The amount paid for the office improvement will be amortized using the remaining life of the asset and the months expired in the year 2015. Given,
- Amount paid for office improvement = $ 20,000
- Remaining life of lease = 5 years
- Months expired in 2015 = 12 months (i.e. from January to December) The amount to be amortized will be calculated as −
- Now, the rent expense will be calculated as − Given,
- Prepaid Rent = $ 36,000
- Months expired in 2015 =12 months (i.e. from January to December)
The rent expense will be debited with $ 8,000 and Accumulated amortization − Leasehold will be credited with $ 8,000
The Amortization expense - Leasehold Improvements will be debited with $ 4,000 and Accumulated amortization - Leasehold Improvements will be credited with $ 4,000.
The rent expense will be debited with $ 36,000 and prepaid rent will be credited with $ 36,000.
Thus, the adjusting journal entries to amortize the $ 40,000 cost of the sublease, to amortize the office improvement and to record rent expense have been prepared
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Chapter 10 Solutions
Fundamental Accounting Principles -Hardcover
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