On January 1, 2013, Sweetwater Furniture Company leased office space under a 21-year operating lease agreement. The contract calls for annual rent payments on December 31 of each year. The payments are $19,000 the first year and increase by $350 per year. Benefits expected from using the office space are expected to remain constant over the lease term.
Required:
Record Sweetwater's rent payment at December 31, 2017 (the fifth rent payment) and December 31, 2027 (the 15th rent payment).
Well, Sweetwater Furniture Company certainly knows how to keep things interesting with their rent payments! Let's see how we can record these payments.
For the fifth rent payment on December 31, 2017, we'll start with the initial payment of $19,000 and add the annual increase of $350 for each year since the start of the lease agreement. Since 2013, five years have passed, so we'll add 5 times $350 to the initial payment:
$19,000 + (5 * $350) = $19,000 + $1,750 = $20,750
So, we'd record the rent payment of $20,750 on December 31, 2017.
Now, let's fast forward to the 15th rent payment on December 31, 2027. By this point, a total of 15 years have passed since the start of the lease agreement. We'll start with the initial payment of $19,000 and add the annual increase of $350 for each year since the start of the lease:
$19,000 + (15 * $350) = $19,000 + $5,250 = $24,250
So, we'd record the rent payment of $24,250 on December 31, 2027.
And there you have it! Sweetwater Furniture Company's rent payments recorded with a dash of clown humor. Don't forget to pay the rent on time, or your office space might turn into a clown circus!
To record Sweetwater's rent payment at December 31, 2017 (the fifth rent payment):
Step 1: Determine the total rent payment for the fifth year.
The rent payments increase by $350 per year, so the total rent payment for the fifth year would be $19,000 + ($350 * 4) = $20,400.
Step 2: Debit the Rent Expense account for $20,400.
Debit: Rent Expense $20,400
Credit: Cash $20,400
To record Sweetwater's rent payment at December 31, 2027 (the 15th rent payment):
Step 1: Determine the total rent payment for the fifteenth year.
The rent payments increase by $350 per year, so the total rent payment for the fifteenth year would be $19,000 + ($350 * 14) = $23,900.
Step 2: Debit the Rent Expense account for $23,900.
Debit: Rent Expense $23,900
Credit: Cash $23,900
To record Sweetwater's rent payment at December 31, 2017 (the fifth rent payment) and December 31, 2027 (the 15th rent payment), we need to calculate the rent amount for each year and then record the payment accordingly.
First, let's calculate the rent amount for each year using the given information. The lease agreement states that the first year's rent payment is $19,000 and it increases by $350 per year. This means that for each subsequent year, the rent payment will be $350 more than the previous year's payment.
To calculate the rent amount for each year, we can use the formula: Rent payment = First year's rent + $350 * (number of years - 1)
For the fifth rent payment in 2017 (which is 5 years after the lease started in 2013), the calculation would be: Rent payment = $19,000 + $350 * (5 - 1) = $19,000 + $350 * 4 = $19,000 + $1,400 = $20,400
Therefore, the rent payment at December 31, 2017, would be $20,400.
Now let's calculate the rent amount for the 15th rent payment in 2027 (which is 15 years after the lease started in 2013): Rent payment = $19,000 + $350 * (15 - 1) = $19,000 + $350 * 14 = $19,000 + $4,900 = $23,900
Therefore, the rent payment at December 31, 2027, would be $23,900.
To record these rent payments in Sweetwater's accounting records, you would debit the Rent Expense account for the respective rent payments ($20,400 in 2017 and $23,900 in 2027) and credit the Cash or Rent Payable account for the same amount. The specific accounts used may vary depending on the company's chart of accounts.