On May 15th Bain Bathtubs signed a lease to rent a storefront starting on June 1st for the next two years at $1,000 per month.They paid the first two months' rent in advance on signing the lease.On May 15th how would the transaction be recorded?
A)Dr.Rent expense $2,000, Cr.Cash $2,000
B)Dr.Rent expense $24,000, Cr.Cash $24,000
C)Dr.Prepaid rent $2,000, Cr.Cash $2,000
D)Dr.Prepaid rent $24,000, Cr Cash $2,000 Cr.Rent payable $22,000

Question

Quizplus · Accepted Answer

The payment of the first two months' rent in advance is considered prepaid rent, which is an asset account. Therefore, the lease signing transaction should be recorded as a debit to Prepaid Rent and a credit to Cash for the same amount ($2,000). Option C is the only one that records the transaction correctly, as the other options either overstate or understate the rent expense and/or the prepaid rent account.

On May 15th Bain Bathtubs Signed a Lease to Rent