unadjusted trail balance(December 31,2008)(Bed Bugs R Us Ltd):
prepaid rent $8,000
rent expense $24,000
adjusting entry question: 4 months worth of prepaid rent had been purchased on September 1 2007 in an adjacent building to b used as thier office. The rent on this space was set at $2,000 per month.
To create the adjusting entry for the prepaid rent in Bed Bugs R Us Ltd's financial statements as of December 31, 2008, we need to calculate the portion of prepaid rent that has been used up or expired during the current year.
First, let's determine the total prepaid rent amount that was purchased on September 1, 2007. We know that four months' worth of prepaid rent was purchased at $2,000 per month, so:
Prepaid Rent = $2,000/month * 4 months = $8,000
Therefore, the total prepaid rent purchased was $8,000.
Now, let's calculate the prepaid rent that has been used up or expired during the current year. Since the prepaid rent was purchased on September 1, 2007, we need to determine how many months have passed between September 1, 2007, and December 31, 2008. Let's count the months:
September 2007 - 4 months remaining (September, October, November, December)
2008 - 12 months
Total months passed = 4 + 12 = 16 months
Next, we'll calculate the total rent expense for the current year:
Rent Expense = $2,000/month * 16 months = $32,000
Based on the calculation, the total rent expense for the current year is $32,000.
To create the adjusting entry, we can find the difference between the prepaid rent purchased and the rent expense for the current year:
Adjusting Entry = Prepaid Rent - Rent Expense
Adjusting Entry = $8,000 - $32,000
Adjusting Entry = -$24,000
The adjusting entry for the prepaid rent would be a debit (increase) to the rent expense account for $24,000 and a credit (decrease) to the prepaid rent account for $24,000. This entry reflects the portion of prepaid rent that has been used up or expired during the current year.