Balance Day Adjustments Questions

[link125]

I'm very curious to see how you guys work out these problems

1. Peng Peng owns and operates "Peng Peng's Nest", a business selling bedding supplies to major hotels. He has provided you with the following Pre-Adjustment Trial Balance (extract) as at 30 June 2012. The business reports monthly.

Pre-Adjustment Trial Balance (extract) as at 30 June 2012
Account                              Dr                   Cr
Prepaid Rent Expense            2420

Additional information:
Rent is paid annually on May 1 each year

Prepare General Journal entries required to record the balance day adjustments on 30 June 2012 (narrations not required)

And this question:
2. Alannah Fashions has provided the following Pre-adjustment Trial Balance as at 31 March 2015:

Pre-adjustment Trial Balance as at 31 March 2015:
Account                              Dr                   Cr
Prepaid Rent                          6000

Additional Information:
Yearly rent is paid on 1 August each year

Given that the reports are prepared monthly, show the General Journal entries to record the balance day adjustments on 31 March 2015. (Narrations not required)

If someone could run through those that would be great

[Truck]

You know the Prepaid Rent Expense was purchased on May 1 for the year, and that reports are prepared monthly . This means you're only calculating the Rent Expense for the month of June, however there is a small trick to note here.

If you were preparing this report for the month of May, you'd simply multiply it by 1/12 as the Prepaid Rent Expense lasts a year. However, since you only have 11 months left of the Prepaid Rent Expense once you reach June, your calculation will be:
2420 * 1/11 = $220 Rent Expense.
So your General Journal entry will be : $220 Rent Expense (Debit)
                                                                $220 Prepaid Rent Expense (Credit)

*NOTE: To prove that this is true, if you minus 220 from 2420 and times it by 1/10 (calculate the next months expense) your figure is also $220. Same applies if you minus 220 again and times it by 1/9, you will get $220 each time, meaning that it is the correct expense figure.

2) So your Prepaid Rent at 31 March = $6000.
Yearly Rent is paid on the 1st August, so you have consumed 8 months of Rent and thus have 4 months remaining.

Therefore your expense for March would be 6000 * 1/4 = $1500.
Therefore your General Journal Entry:  $1500 Rent Expense (Debit)
                                                                   $1500 Prepaid Rent Expense (Credit)

I hope that clarified things for you!

[link125]

Thanks so much

This shit has been doing my head in

I was so used to doing it when the reports were done yearly, I didn't pick up on the monthly parts

BTW that second question was 10.13 in Cambridge, and the answer was 1200

I'm assuming it is a mistake on their part, the only way I could get a similar answer is by doing this and assuming the reports are done yearly:
31 March 2014 - $6000
6000/4 (1 April 2014 - 1 August 2014 is 4 months) = 1500 a month
1500*12=18000 (Prepaid Rent Expense at 1 August)
1500*8 (1 August 2014 - 31 March 2015 is 8 months)= 12000 (not exactly 1200, but similar?)
So yeah, not sure if they wanted the rent expense from 1 August 2014 to balance day on 31 March 2015?

[Truck]

Thanks so much

This shit has been doing my head in

I was so used to doing it when the reports were done yearly, I didn't pick up on the monthly parts

BTW that second question was 10.13 in Cambridge, and the answer was 1200

I'm assuming it is a mistake on their part, the only way I could get a similar answer is by doing this and assuming the reports are done yearly:
31 March 2014 - $6000
6000/4 (1 April 2014 - 1 August 2014 is 4 months) = 1500 a month
1500*12=18000 (Prepaid Rent Expense at 1 August)
1500*8 (1 August 2014 - 31 March 2015 is 8 months)= 12000 (not exactly 1200, but similar?)
So yeah, not sure if they wanted the rent expense from 1 August 2014 to balance day on 31 March 2015?

Well if you multiply $6000 * 1/5 (assuming that 5 months remained rather then 4 months), you'd get $1200.  I just double checked, I'm pretty sure there's only 4 months left according to what you told me, but the solutions have lots of errors - I've done 10.13 myself but don't have the workbook at home with me, so I'll check tomorrow and see what I wrote. But yeah, probably an error.

[link125]

Well if you multiply $6000 * 1/5 (assuming that 5 months remained rather then 4 months), you'd get $1200.  I just double checked, I'm pretty sure there's only 4 months left according to what you told me, but the solutions have lots of errors - I've done 10.13 myself but don't have the workbook at home with me, so I'll check tomorrow and see what I wrote. But yeah, probably an error.

Ahhhh
You are the god of balance day adjustments

Never would have thought they miscounted months to five. I'm keen to see what you had in your workbook now!

Just curious, do you do Checkpoints? I've given it a go but the templates and errors in the answers at times are terrible...
Am I better of just doing practice exams?

[Truck]

Well if you multiply $6000 * 1/5 (assuming that 5 months remained rather then 4 months), you'd get $1200.  I just double checked, I'm pretty sure there's only 4 months left according to what you told me, but the solutions have lots of errors - I've done 10.13 myself but don't have the workbook at home with me, so I'll check tomorrow and see what I wrote. But yeah, probably an error.

Ahhhh
You are the god of balance day adjustments

Never would have thought they miscounted months to five. I'm keen to see what you had in your workbook now!

Just curious, do you do Checkpoints? I've given it a go but the templates and errors in the answers at times are terrible...
Am I better of just doing practice exams?

Haha cheers, Balance Day Adjustments just require practice and then they're relatively straightforward! So long as you logically think through "what's been consumed", "how much is left" etc, you'll be fine .

And no I don't do Checkpoints, I have been doing prac. exams however, as many 2012 ones as I can find.

[Truck]

So I checked it over at home, and yes the answer is $1200!

Explanation:
You have $6000 Prepaid Rent, payed at the 1st August. The reports are written monthly, and at the 1st of March you will have consumed 7 months of rent. That means for the remainder of the year, you have left over 5 months of Prepaid Rent. 6000 * 1/5 = $1200. Thus, you'll have a Rent Expense of $1200. Hope that makes sense .

[link125]

So I checked it over at home, and yes the answer is $1200!

Explanation:
You have $6000 Prepaid Rent, payed at the 1st August. The reports are written monthly, and at the 1st of March you will have consumed 7 months of rent. That means for the remainder of the year, you have left over 5 months of Prepaid Rent. 6000 * 1/5 = $1200. Thus, you'll have a Rent Expense of $1200. Hope that makes sense .

Hmmm
So why exactly don't we include March, which would have made it 8 months of consumed rent?
Why wouldn't we recognise it for that month?

[Truck]

So I checked it over at home, and yes the answer is $1200!

Explanation:
You have $6000 Prepaid Rent, payed at the 1st August. The reports are written monthly, and at the 1st of March you will have consumed 7 months of rent. That means for the remainder of the year, you have left over 5 months of Prepaid Rent. 6000 * 1/5 = $1200. Thus, you'll have a Rent Expense of $1200. Hope that makes sense .

Hmmm
So why exactly don't we include March, which would have made it 8 months of consumed rent?
Why wouldn't we recognise it for that month?

Because this report is for the month of March, not specifically for the 31st of March, we know that when march begins, we have 5 months of the Prepaid Rent available to us. At the end of March we only have 4 months left, so you need to include March as one of the remaining months in your expense calculation.

The way you think of it is like this:
The $6000 figure you have is the prepaid rent expense left over, after the months May - February (not march) have been paid. You know this because reports are prepared monthly, and thus the Pre-Adjustment Balance for the month would not include the adjustment for March (you need to do it yourself).

Thus, inclusive of March, you have 5 months left over.
So your expense for March is 6000 * 1/5.
If it was for April, it'd be times 1/4, May - 1/3, June - 1/2, July - the remainder of the Prepaid Expense.

Hope that makes sense.

[link125]

Because this report is for the month of March, not specifically for the 31st of March, we know that when march begins, we have 5 months of the Prepaid Rent available to us. At the end of March we only have 4 months left, so you need to include March as one of the remaining months in your expense calculation.

The way you think of it is like this:
The $6000 figure you have is the prepaid rent expense left over, after the months May - February (not march) have been paid. You know this because reports are prepared monthly, and thus the Pre-Adjustment Balance for the month would not include the adjustment for March (you need to do it yourself).

Thus, inclusive of March, you have 5 months left over.
So your expense for March is 6000 * 1/5.
If it was for April, it'd be times 1/4, May - 1/3, June - 1/2, July - the remainder of the Prepaid Expense.

Hope that makes sense.

I've tried to visualise it to help me understand


This part here I didn't really understand:
"The $6000 figure you have is the prepaid rent expense left over, after the months May - February (not march) have been paid. You know this because reports are prepared monthly, and thus the Pre-Adjustment Balance for the month would not include the adjustment for March (you need to do it yourself)."

Is it essentially because I should have recognised that 6000 is actually what we have at the start of March (from what was determined from the previous month's reports), which means that 5 months are still to be consumed before the next payment at August 1?

Thanks for this btw

[Truck]

Is it essentially because I should have recognised that 6000 is actually what we have at the start of March (from what was determined from the previous month's reports), which means that 5 months are still to be consumed before the next payment at August 1?

Exactly right.

[link125]

Exactly right.

Fuck yeah!

[BoredSatan]

Exactly right.

Fuck yeah!

LANGUAGE!

[link125]

I think there should be some exceptions for foul language when you slay the beast that is balance day adjustments