39 of 43 - Shelly owns a building containing 1,640 square feet that he rents to

Question

39 of 43 - Shelly owns a building containing 1,640 square feet that he rents to Jones at an annual rate of $8 per square foot under a five-year lease, payable in equal monthly installments. If he sold the building to Jones, and settlement occurred on the twelfth day of the month, how would rents paid in advance to the end of the month be prorated? Day of settlement is charged to the seller. Use the 360-day method to solve the problem. a) debit the purchaser $656.05, credit the seller $656.05 b) credit the purchaser $656.05, debit the seller $656.05 c) credit the purchaser $8,309.33 d) credit both the purchaser and seller $659.80

Explanation / Answer

Answer:

Shelly rents 1640 square feet at an annual rate of $8 per Square feet =1640*8=$13,120 per annum.

He leases for 5 year so rent will be 13,120*5=$65,600

Calculation of prorated rent when settlement occured on the 12th day of the month using 360 day method:

=rent per annum/360days*18days(assuming 30 days month and settlement day charged to seller no.of days left are (30-12)).

=13120/360*18

=$656

Option (b) is the answer because jones (now purchaser) debits rent and on prorated basis now he credits his rent account.

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