Prepaid RentQuarterly Adjustments

On September 1, Westward Inc., signed a six-month lease for office space, which is effective September 1. Westward agreed to prepay the rent and mailed a check for $10,980 to the lessor on September 1. Assume that Westward prepares adjustments only four times a year: on March 31, June 30, September 30, and December 31.

Required:

1. Compute the rental cost for each full month. $ per month

2. Identify and analyze the effect of the transaction for the payment of rent on September 1.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

3. Identify and analyze the effect of the adjustment on September 30.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

4. Assume that the accountant prepares the adjustment on September 30 but forgets to record an adjustment on December 31. Will net income for the year be understated or overstated?

By what amount? $

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