Terry Corporation is a cash basis reporting entity. On January 1, 2004, Terry si

Question

Terry Corporation is a cash basis reporting entity. On January 1, 2004, Terry signed as operating lease agreement which requires $5,800 annual rentals to be paid at the end of each year. The accounting period ends December 31. At the end of 2004, Terry should make which of the following entries:Question 1 options:
a. (dr)Leased Asset $5,800
(cr)Cash $5,800

b.(dr)Rent Paid in Advance $5,800
(cr)Cash $5,800

c. (dr)Rent Expense $5,800
(cr)Cash $5,800

d. (dr)Rent Expense $5,800
(cr)Lease Liability $5,800
I am confued if this is a rent expense or a leased asset? could you expalin your answer

Explanation / Answer

This is an operating lease. Hence there is no question of lease liability. Also rent is an expense.Hence Debit it. Cash is going out.Hence Credit it. The correct answer is : (dr)Rent Expense $5,800
(cr)Cash $5,800

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