On July 31st 20X1, Williamson Inc.

(tenant) signs a lease contract for 6 months with RentSolutions

Inc. (landlord). The 6-month rent is $22,500, to be paid entirely on July 31st 20X1. For both
companies, record all required entries from July 31st 20X1 to January 31st 20x2.

JOURNAL ENTRIES
ACC. CHANGE
DATE ACCOUNT TITLE Dr. Cr.
TYPE DIRECT.
 JOURNAL ENTRIES - TENANT
ACC. CHANGE
DATE ACCOUNT TITLE Dr. Cr.
TYPE DIRECT.

31 July Prepaid rent expense A UP 22,500

Cash A DOWN 22,500
31 Dec Rent Expense EXP UP 18,750
Prepaid rent expense A DOWN 18,750
Jan 31 Rent Expense EXP UP 3,750
Prepaid rent expense A DOWN 3,750

JOURNAL ENTRIES – LANDLORD

ACC. CHANGE
DATE ACCOUNT TITLE Dr. Cr.
TYPE DIRECT.

31 July Cash A UP 22,500

Deferred rent revenue L UP 22,500
31 Dec Deferred rent revenue L DOWN 18,750
Rent Revenue REV UP 18,750
Jan 31 Deferred rent revenue L DOWN 3,750
Rent Revenue REV UP 3,750
If the payment had been due at the end of the 6-month period (i.e. on January
31st 20x2), which of the following statements would have been true? (select all that apply)
a. Tenant’s net income for the year X1 would have been lower

b. Both companies’ net income for the year X1 would have been the same

c. Landlord’s operating cash flow for the year X2 would have been higher

d. On December 31st X1, Tenant would have credited cash

e. On December 31st X1, neither company would have recorded any entries

f. On Tenant’s balance sheet for the year X1, total assets would have been higher

g. On Landlord’s balance sheet for the year X1, total assets would have been lower

a. On Landlord’s balance sheet for the year X2, Cash would have been the same
 JOURNAL ENTRIES - TENANT
ACC. CHANGE
ACCOUNT TITLE Dr. Cr.
TYPE DIRECT.

31 Dec Rent expense EXP UP 18,750

Accrued rent payable L UP 18,750

Jan 31 Rent expense EXP UP 3,750

Accrued rent payable L DOWN 18,750
Cash A DOWN 22,500

JOURNAL ENTRIES – LANDLORD

ACC. CHANGE
ACCOUNT TITLE Dr. Cr.
TYPE DIRECT.

31 Dec Accrued rent receivable A UP 18,750

Rent revenue REV UP 18,750

Jan 31 Cash A UP 22,500

Accrued rent receivable A DOWN 18,750
Rent revenue REV UP 3,750
If the payment had been due at the end of the 6-month period (i.e. on January
31st 20x2), which of the following statements would have been true? (select all that apply)
a. Tenant’s net income for the year X1 would have been lower FALSE
(same entries to income statement accounts)
b. Both companies’ net income for the year X1 would have been the same TRUE
(same entries to income statement accounts)
c. Landlord’s operating cash flow for the year X2 would have been higher TRUE
(cash is debited in the year X2 instead of the year X1)
d. On December 31st X1, Tenant would have credited cash FALSE
(NO! You do not adjust cash on 12/31 unless a payment actually occurs)
e. On December 31st X1, neither company would have recorded any entries FALSE
(nonsense)
f. On Tenant’s balance sheet for the year X1, total assets would have been higher TRUE
– 18,750 (deferral case) vs. zero Change (accrual case)
g. On Landlord’s balance sheet for the year X1, total assets would have been lower TRUE
+ 22,500 (deferral case) vs +18,750 (accrual case)
h. On Landlord’s balance sheet for the year X2, Cash would have been the same TRUE
At the end of the year X2, all cash has been collected in either case