Phoenix Corp. paid rent of $15,000 for 3 months in advance on November 1, 2018. Phoenix accounting period ends on December 31, 2018. Which amount will be reported at December 31, 2018?

Question

Quizplus · Accepted Answer

DPrepaid rent of $5,000 will be reported on the December 31, 2018, balance sheet because two months' rent ($10,000) would have been used by the end of December, leaving one month ($5,000) as prepaid. Rent expense of $10,000 (not $5,000 as mistakenly mentioned) will be reported on the income statement for the year ending December 31, 2018, reflecting the rent expense for November and December. However, the correct explanation involves recognizing $10,000 as the expense, not $5,000 as indicated in choice D. My mistake in the explanation; the correct rent expense for the period should indeed be $10,000, not $5,000 as choice D suggests. The correct answer should focus on the prepaid rent aspect for the balance sheet.