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Dear sir,
i am so sorry to disturb you. I’ve been trying to do this question for hours now but I cannot get the answer.
10.2 (BPP)
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?Rent expense Accrual
$ $
A 100,000 20,000
B 100,000 10,000
C 97,500 10,000
D 97,500 20,000thanks a lot, sir.
We need the expense for the period 1 February X2 to 31 January X3.
From 1 Feb X2 to 30 Sep X2 is 8 months, and therefore the cost is 8/12 x 90,000 = 60,000.
From 1 Oct X2 to 31 Jan X3 is 4 months, and therefore the cost is 4/12 x 120,000 = 40,000.Therefore the total expense is 60,000 + 40,000 = 100,000.
As at 31 Jan X3, the latest payment was on 1 Jan X3. They are paying in arrears and therefore that payment was for the 3 months to 31 Dec X2.
So as at 31 Jan X3 they still owe for January, and therefore the accrual is for 1 months rent: 1/12 x 120,000 = 10,000.thanks a million sir. I feel rather silly now wasting hours to find this answer. i actually thought BPP was wrong.
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