Connect Access Card For Financial Accounting Fundamentals
Connect Access Card For Financial Accounting Fundamentals
7th Edition
ISBN: 9781260482829
Author: John J Wild
Publisher: McGraw-Hill Education
bartleby

Concept explainers

bartleby

Videos

Question
Book Icon
Chapter 8, Problem 8AP

1.

To determine

Prepare journal entries to record (a) its payment to Company F for the right to sublease the building space, (b) its payment of the 2017 annual rent to the building owner, and (c) its payment for the office.

1.

Expert Solution
Check Mark

Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and equities.
  • Credit, all increase in liabilities, revenues, and equities, all decrease in assets, and expenses.

Prepare journal entries to record (a) its payment to Company F for the right to sublease the building space, (b) its payment of the 2017 annual rent to the building owner, and (c) its payment for the office as follows:

(a) Payment to Company F for the right to sublease the building space.

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

June 25, 2017Leasehold 200,000 
Cash  200,000
 (To record the amount of $200,000 paid for sublease)   

Table (1)

  • Leasehold is an asset account and it increases the value of asset by $200,000. Therefore, debit leasehold account for $200,000.
  • Cash is an asset account and it decreases the value of asset by $200,000. Therefore, credit Cash account for $200,000.

b) Payment of the 2017 annual rent to the building owner

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

July 1, 2017Prepaid rent 80,000 
Cash  80,000
 (To record prepaid annual lease rent paid in cash)   

Table (2)

  • Prepaid rent is an asset account and it increases the value of asset by $80,000. Therefore, debit prepaid rent account for $80,000.
  • Cash is an asset account and it decreases the value of asset by $80,000. Therefore, credit Cash account for $80,000.

(c) Payment made for the office

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

July 5, 2017Leasehold improvement 130,000 
Cash  130,000
 (To record cash paid for leasehold improvement)   

Table (3)

  • Leasehold improvement is an asset account and it increases the value of asset by $130,000. Therefore, debit leasehold improvement account for $130,000.
  • Cash is an asset account and it decreases the value of asset by $130,000. Therefore, credit Cash account for $130,000.

2.

To determine

Prepare the year-end adjusting journal entries required at December 31, 2017 to (a) amortize the $200,000 cost of the sublease, (b) amortize the office improvements, and (c) record rent expense.

2.

Expert Solution
Check Mark

Explanation of Solution

Prepare the year-end adjusting journal entries required at December 31, 2017 to (a) amortize the $200,000 cost of the sublease, (b) amortize the office improvements, and (c) record rent expense as follows:

(a) Amortize the $200,000 cost of the sublease

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
December 31, 2017Rent expense (1) 10,000 
 Accumulated depreciation-leasehold  10,000
 (To record leasehold amortization incurred at the end of the first year)   

Table (4)

  • Rent expense is an expense account, and it decreases the value of equity. Hence, debit the rent expense by $10,000.
  • Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit accumulated depreciation by $10,000.

Working note:

Calculate the rent expense incurred for leasehold

Rent expense= [[Cost of the Asset  Residual valueEstimated Useful Life of the Asset]×[(Number of months between July to December)Number of months in a year]]=[$200,000$010 Years]×612=$10,000 (1)

(b) Amortize the office improvements

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
December 31, 2017Amortization expense-Leasehold improvements (2) 6,500 
 Accumulated depreciation-Leasehold improvements  6,500
 (To record amortization expense incurred at the end of the year)   

Table (5)

  • Amortization expense is an expense account, and it decreases the value of equity. Hence, debit the amortization expense by $6,500.
  • Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit accumulated depreciation by $6,500.

Working note:

Compute the amortization expenses

Annual Depreciation= [[Cost of the Asset  Residual valueEstimated Useful Life of the Asset]×[(Number of months between July to December)Number of months in a year]]=[$130,000$010 Years]×612=$6,500 (2)

(c) Record rent expense:

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
December 31, 2017Rent expense (3) 40,000 
 Prepaid rent expense  40,000
 (To record rent expense incurred at the end of the year )   

Table (6)

  • Rent expense is an expense account, and it decreases the value of equity. Hence, debit the rent expense by $40,000.
  • Prepaid rent is an asset, and it decreases the value of assets. Therefore, credit prepaid rent by $40,000.

Working note:

Calculate the rent expense incurred for leasehold

Rent expense= [Value of prepaid rent×[(Number of months between July to December)Number of months in a year]]=$80,000×612=$40,000 (3)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 8 Solutions

Connect Access Card For Financial Accounting Fundamentals

Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Accounting for Finance and Operating Leases | U.S. GAAP CPA Exams; Author: Maxwell CPA Review;https://www.youtube.com/watch?v=iMSaxzIqH9s;License: Standard Youtube License