D is corrent. Because fixed rent is paid at the beginning of the month, there is no need to accrue any fixed rent expense on 12/31/Y1. However, additional rent of $36,000 [6% × ($800,000 - $200,000)] should be recorded as an accrued expense. Additionally, the property tax expense applicable from 7/1/Y1 to 12/31/Y1 is $3,000 ($6,000 × 6/12) and will not be paid until 6/30/Y2. Therefore, accrued expenses on 12/31/Y1 is $39,000 ($36,000 + $3,000).
A is incorrect because fixed rent is paid at the beginning of the month, there is no need to accrue any fixed rent expense on 12/31/Y1. However, additional rent of $36,000 [6% × ($800,000 - $200,000)] should be recorded as an accrued expense. Additionally, the property tax expense applicable from 7/1/Y1 to 12/31/Y1 is $3,000 ($6,000 × 6/12) and will not be paid until 6/30/Y2. Therefore, accrued expenses on 12/31/Y1 is $39,000 ($36,000 + $3,000).
A is incorrect because fixed rent is paid at the beginning of the month, there is no need to accrue any fixed rent expense on 12/31/Y1. However, additional rent of $36,000 [6% × ($800,000 - $200,000)] should be recorded as an accrued expense. Additionally, the property tax expense applicable from 7/1/Y1 to 12/31/Y1 is $3,000 ($6,000 × 6/12) and will not be paid until 6/30/Y2. Therefore, accrued expenses on 12/31/Y1 is $39,000 ($36,000 + $3,000).
C is incorrect because fixed rent is paid at the beginning of the month, there is no need to accrue any fixed rent expense on 12/31/Y1. However, additional rent of $36,000 [6% × ($800,000 - $200,000)] should be recorded as an accrued expense. Additionally, the property tax expense applicable from 7/1/Y1 to 12/31/Y1 is $3,000 ($6,000 × 6/12) and will not be paid until 6/30/Y2. Therefore, accrued expenses on 12/31/Y1 is $39,000 ($36,000 + $3,000).
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