On December 31,2018,Prince Inc.paid $9,800 to rent a storage facility from July 1,2019 to July 1,2020.Which of the following statements about the effect of this transaction on Prince's financial statements is correct?

Question

Quizplus · Accepted Answer

When a company pays for something that provides benefits in future periods,the cost is reported as an asset.This prepayment would be recorded as an asset called Prepaid Rent.Since the prepayment covers the period from July 1,2019 to July 1,2020,the income statement for the year ended December 31,2018 is unaffected by this transaction.Prepaid Rent in the amount of $9,800 (the amount of the prepayment)will be reported as an asset (rather than a liability)on the balance sheet at December 31,2018.Further,since six months of the prepayment remain unused,Prepaid Rent in the amount of $4,900 (one-half of the amount of the prepayment)will be reported as an asset on the balance sheet at December 31,2019.