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A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The
rent was increased from $90,000 per year to $120,000 per year as from 1 October 20X2.
What rent expense and accrual should be included in the company’s financial statements for the year
ended 31 January 20X3?Can you please explain why opening accrual is 15k and not 7500? Jan of 20×2 is unpaid for at 31 jan 20×2 year end so closing accrual for that year should be 7500.
Cash paid at the year ended 31 jan 20×3 is 105k to my understanding and closing accrual is 10k so when im making the expense a/c why am i getting the answer 107500 and not 100k to P/L?The opening accrual is 7,500, but this is not needed to answer the question.
The expense for the year is 8 months at the rate of 90,000 per year, and 4 months at the rate of 120,000 per year.
So (8/12 x 90,000) + (4/12 x 120,000) = $100,000 is in the SOPL.The accrual at the end of the year is indeed $10,000 for the SOFP.
( Although calculating the cash paid is not necessary, the cash paid is
(3 x 22,500) + (1 x 30,000) = $97,500
So again the expense in the SOPL = 97,500 – 7,500 + 10,000 = $100,000 )Thank you! I figured out what I was doing wrong!! I was calculating cash paid (2 x 22500) + ( 2 x 30k) because i thought rent payment would be 30k on 1 oct for last 3 months, which is why my expense a/c wasn’t adding up. thank you for helping me
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