On October 1, 2012, Zane Corporation paid $18,000 rent in advance. The rent per month is $1,500. If Zane's accounting period ends on December 31, 2012, what will be reported on the financial statements?

Question

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Zane Corporation prepaid $18,000 rent in advance for 12 months, so the monthly rent expense is $1,500 ($18,000/12). Since Zane's accounting period ends on December 31, 2012, three months of rent have already passed (October, November, and December), which means the rent expense for those months is $4,500 (3 months x $1,500). Therefore, the remaining prepaid rent at December 31, 2012, is $13,500 ($18,000 - $4,500), which should be reported on the balance sheet as Prepaid Rent. The full $18,000 should not be reported on the balance sheet because only part of it applies to the next accounting period. The $18,000 should not be reported as Rent Expense because that would overstate the current year's expenses. Rent Revenue is not applicable because the Corporation is the one paying rent, not receiving rent.

On October 1, 2012, Zane Corporation Paid $18,000 Rent in Advance