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Chapter 3 Alternate Demonstration Problem #1 On July 1, 2019, Howard M. Tenant, Inc., rents office space from John Q. Landlord for two years, starting immediately, at a rate of $100 per month, or $2,400 in total. The full $2,400 was paid on this date. Record the original transaction and the appropriate adjusting entries in 2019, 2020, and 2021 from the point of view of Tenant and Landlord. Solution: Chapter 3 Alternate Demonstration Problem #1 Landlord 2,400 2,400 Cash Unearned Rent Rev. 2,400 2,400 600 600 Tenant 7/1/19 Prepaid Rent Cash 12/31/19 Rent Expense Prepaid Rent 12/31/20 Rent Expense "Prepaid Rent 12/31/20 "Rent Expense Prepaid Rent Unearned Rent Rev. Rent Revenue 600 600 1,200 1,200 Unearned Rent Rev. Rent Revenue 1,200 1,200 600 600 Unearned Rent Rev. Rent Revenue 600 600 2,400 An Alternative Solution (Based on the Appendix) Tenant Landlord 7/1/19 Rent Expense 2.400 Cash 2.400 Cash 2.400 Rent Rev. 12/31/9 Prepaid Rent 1,800 Rent Rev. 1,800 Rent Expense 1,800 Unearned Rent Rev *12/31/20 Rent Expense 1,200 Unearned Rent Rev. 1,200 Prepaid Rent 1,200 Rent Revenue *12/31/21 Rent Expense 600 Unearned Rent Rev. 600 Prepaid Rent 600 Rent Revenue 1,800 1,200 600 *Notice the adjustment is the same in 2020 and 2021 under both approaches. This is because the adjustment in the appendix alternative solution places all remaining unexpired/unearned amounts in the asset/liability accounts to be considered for future adjustment. Copyright 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-H Education 3-2