Marlin Enterprises signed a lease for office space during their first month of business.At that time they paid a total of $12,000 for first and last months' rent.At the end of the first month,the effect on the financial statements would be A)$12,000 rent expense. B)$6,000 rent expense and $6,000 prepaid rent on the Statement of Financial Position. C)$12,000 prepaid rent on the Statement of Financial Position. D)Nothing recorded because the company has not made any sales yet.

Question

Quizplus · Accepted Answer

When Marlin Enterprises pays for first and last months' rent, only one month's expense needs to be recognized in the current period. The other month's rent will be recognized as an expense in the future period. Therefore, $6,000 rent expense should be recorded on the Income Statement and $6,000 prepaid rent should be recorded on the Statement of Financial Position. Option A is incorrect because $12,000 is not entirely an expense incurred in the current period. Option C is incorrect because $12,000 rental expense cannot be considered as a prepaid expense. Option D is incorrect because recording expenses such as rent is independent of sales.

Marlin Enterprises Signed a Lease for Office Space During Their