On September 1, 2011, Ameriship paid West Coast Rentals $36,000 for a 12-month l

Question

On September 1, 2011, Ameriship paid West Coast Rentals $36,000 for a 12-month lease on warehouse space. Requirement 1: Record the deferral and the related December 31, 2011, adjustment for Ameriship in the accounting equation. (Amounts in parentheses do not require a minus sign in front of them. Omit the "$" sign in your response.) Ameriship Accounting Equation - 2011 Event Assets = Liabilities + Stockholders' Equity Cash Prepaid Rent = + Common Stock + Retained Earnings Event () Adj. ( )* () *$ x / 12 = $

Explanation / Answer

Please rate if you find this helpful. $36,000 for 12 months = $3,000 per month Initial Journal Entry: September 1: DR: Prepaid Rent 36,000 CR: Cash 36,000 Increase in one asset (Prepaid Rent), decrease in another asset (Cash). Adjusting Entry: December 31: Four months have elapsed, so $3,000 x 4 = $12,000 DR: Rent Expense 12,000 CR: Prepaid Rent 12,000 Increase an expense, which decreases Net Income, which causes Retained Earnings to decrease. Also, an asset (Prepaid Rent) decreases.

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