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 This topic has 7 replies, 5 voices, and was last updated 8 years ago by neilsolaris.

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May 25, 2014 at 1:32 pm #170687katrina
 Topics: 1
 Replies: 1
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Hi all,
Please I am unable to get the correct answer to question 4
Moira prepares its financial statements for the year to 30 April each year. The company pays rent for its premises quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was $201,600 per year until 30 June 2008. It was increased from that date to $230,400 per year.What rent expense and end of year prepayment should be included in the financial statements for the year ended 30 April 2009?
options:
Expense Prepayment
A $223,200 $19,200
B $223,200 $38,400
C $225,600 $9,200
D $225,600 $38,400I worked it out to be:
expenses $201,600 * 2/12 (paid 2 months :1 January, 1 april as year end was 30 april) =$33600 ($33600+ $201,600= $235200.
prepayment $230400* 2/12 (increased from 30 june 2008 so paid 2 months 1 july, 1 October for the year) = $38400
I have got expenses figure wrong but don’t know why please provide correct workings, anyone help.
many thanks.
Kathryn.
May 26, 2014 at 11:11 am #170893zwahira Topics: 26
 Replies: 44
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the ans is C I guess u made a typing error 4 C its 225600,19200.
the best way to answer this type of question is through a timeline i.e from 1may08 to 30apr09 as it is the company’s financial year.
from 01may08 to 30june08 the annual rent paid was $201600.thus for 1month it is $16800(201600/12).thus for 2 months the total expense would be $16800*2=33600
then from 30june08 to 30apr09 the annual rent paid is $230400.thus for 1 month it is $19200(230400/12).thus for 10 months remaining the total expense would be $19200*10=192000
as you know that in an inc statement only total is being incurred then the answer is $33600+192000=225600
then to know if it is either a prepayment or an accrual check out the last payment.here in the question it is the 1apr.previously we had known that the financial year ends the 30apr09.thus there has been 1 month of prepayment i.e.1*19200=19200.
which leads to answer c.
I hope this help you .
May 26, 2014 at 12:46 pm #170918katrina Topics: 1
 Replies: 1
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It does help. Thanks Zwahira.
May 26, 2014 at 9:21 pm #171082michealjames Topics: 1
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THE CORRECT ANSWER IS D.
Financial year end 30 April 2009
Amount to be debited in IS=(201600/12*2)+(230400/12*10) gives you $225,600.
Last payment for the financial year will be on 1 April 2009.Includes 3 months, i.e, April, May and June.
May and June will include the amount prepaid.
Prepayment for 2 months=230400/12*2=$38,400
May 27, 2014 at 3:00 pm #171178zwahira Topics: 26
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Michealjames I think you make an error for the prepayment it is only one month because the last month of payment is 1april..maybe we should ask John sir about it
May 27, 2014 at 3:01 pm #171179zwahira Topics: 26
 Replies: 44
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thanks Katrina
June 8, 2014 at 11:01 am #175158derrick Topics: 0
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MICHAELJAMES IS RYT THE ANSWER IS D.
I/S 2/12*201600=33600 FOR MAY2008 N JUNE2008
10/12*230400=192000 FOR JULY2008 TO 30APRIL2009
TOTAL 33600+192000=225600 INCOME STATEMENTPREPAID MAY N JUNE2009 2/12*230400=38400 SoFP
June 22, 2014 at 2:23 pm #177409neilsolaris Topics: 59
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I agree with Michael James too, D is the correct answer.
Moira has prepaid for two months, which do not belong to the relevant period, i.e. she has paid for May and June in advance. Therefore, the overpayment is $230,400/4 (to give quarterly amount paid) = 57,600 * 2/3 = $38,400.
The expense is the amount due for the period. In this case the first 2 months at the lower cost, then the next 10 months at the higher cost. So, the answer is ($201,600 * 2/12) + ($230,400 * 10/12) = $225,600.

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