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Hi John
Please see question below:
Active Co pays rent quarterly in arrears on 1 Jan, 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 20×2.
What rent expense and accrual should be included in Active Co’s financial statements for the year ended 31 Jan 20×3?
Answer:
Rent expense 100,000 Accrual 10,000Why is the accrual only 10,000 when in Jan we are billed for Feb & March as well. I included the 10,000 for Jan as rent expense and would accrue 20,000 for Feb & March which is 20,000?
Thanks
They are paying rent in arrears, so the payment on 1 January was for the previous October, November, and December.
As at 31 January they therefore owe for January’s rent and need to accrue 1/12 x 120,000 = $10,000.
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