On May I, Bashir and Hendricks (B&H), Accountants, pays 51,200 to a landlord for one month's rent in advance for the month of May.
(a) Assuming that B&H records all prepayments in (permanent) balance sheet accounts:
1. Prepare the journal entry B&H should record when it pays the rent on May I.
2. Prepare the adjusting entry B&H should record at the end of May, when the month's rent has expired.
(b) Assuming that B&H records all prepayments in (temporary) income statement accounts:
1. Prepare the journal entry B&H should record when it pays the rent on May I.
2. Prepare the adjusting entry B&H should record at the end of May, when the month's rent has expired.
(c) Compare and comment on the ending balances of each account, for each alternative in parts (a) and (b).