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?

Question

Quizplus · Accepted Answer

Since Bain Bathtubs paid the first two months' rent in advance, they have prepaid rent for those two months. Therefore, we would record an increase in prepaid rent and a decrease in cash. The amount of the transaction would be $2,000 ($1,000 per month for two months). Option A is incorrect because expenses would not increase by $2,000 since only two months' rent was paid in advance. Option B is incorrect because the total rent paid over two years was only $24,000 and not paid in full. Option D is incorrect because the total rent paid over two years was only $24,000 and not paid in full.

On May 15th, Bain Bathtubs Signed a Lease to Rent