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- October 29, 2016 at 8:58 am #346531
A company pays rent quarterly in arrears on 1 January, 1 April, 1 July, and 1 October each year. The rent was increased from $90000 per year to $120000 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?Sir, for this question I got the answer as
Rent expense = 100000 and Accrual = 20000
but the answer given in the book is expense = 100000 but accual = 10000
Can you explain me how?October 29, 2016 at 12:46 pm #346553They are paying in arrears, and so the payment on 1 January will have been for October, November and December of the previous year.
As at 31 January therefore, they still owe for January so there is an accrual for one month which is 1/12 x $120,000.
October 29, 2016 at 1:27 pm #346560I understood now, Thank you sir
October 29, 2016 at 1:50 pm #346564You are welcome 🙂
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