What is the balance of Norma Company's Prepaid Rent account at the end of June?
Norma Company signed a 12-month lease for warehouse space, with a monthly rent of $550 and 4 months paid in advance. The company recorded the payment by debiting Prepaid Rent $2,200 and crediting Cash $2,200. At the end of June, we need to determine the balance of Norma's Prepaid Rent account.
Analysis of Prepaid Rent Balance:
Given Data:
- Monthly rent: $550
- Months paid in advance: 4
- Payment recorded: Prepaid Rent debited $2,200 and Cash credited $2,200
Calculation of Prepaid Rent Balance:
As Norma Company paid 4 months of rent in advance, each month's rent is $550. Therefore, the total amount paid in advance is $550 * 4 = $2,200.
Adjusting Entry at the end of June:
1. Debit Rent Expense: $550
2. Credit Prepaid Rent: $550
Prepaid Rent Balance Calculation:
- Initial Prepaid Rent: $2,200
- June Rent Expense: ($550)
- Balance at the end of June: $1,650
Therefore, the balance of Norma Company's Prepaid Rent account at the end of June is $1,650.