Multiple Choice
Kiley Corporation was formed in 2022. The owners invested \$50,000 cash in exchange for common stock. Which of the following is the correct journal entry to record this transaction?
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2. Transaction Analysis
Journal Entries: Business Formation Example
Multiple Choice
When the lessee (tenant) signs a lease for office space and pays the first month's rent in advance, which of the following journal entries should the lessee record?
A
Debit Prepaid Rent; Credit Cash
B
Debit Cash; Credit Rent Revenue
C
Debit Rent Expense; Credit Accounts Payable
D
Debit Lease Liability; Credit Rent Expense
Verified step by step guidance1
Understand the nature of the transaction: The lessee (tenant) is paying the first month's rent in advance, which means the payment is for a future benefit (use of office space). This qualifies as a prepaid expense, which is an asset.
Identify the accounts involved: The lessee is using cash to pay for the rent in advance, so the accounts affected are 'Prepaid Rent' (an asset account) and 'Cash' (an asset account).
Determine the journal entry: Since the payment is made in advance, the lessee should debit 'Prepaid Rent' to increase the asset account and credit 'Cash' to decrease the asset account.
Rule out incorrect options: Review the other options provided. 'Debit Cash; Credit Rent Revenue' is incorrect because the lessee is not earning revenue. 'Debit Rent Expense; Credit Accounts Payable' is incorrect because the rent is paid in advance, not incurred as an expense yet. 'Debit Lease Liability; Credit Rent Expense' is incorrect because there is no liability or expense involved in this transaction.
Record the correct journal entry: The correct journal entry is 'Debit Prepaid Rent; Credit Cash,' reflecting the advance payment for rent as an asset and the reduction in cash.
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