On October 1,a company paid $9,000 rent in advance.The rent per month is $1,000.Assuming the company's accounting period ends on December 31,what will be reported on the financial statements?

Question

Quizplus · Accepted Answer

Since the company paid $9,000 in advance for rent and the rent per month is $1,000, the company has prepaid rent for 9 months (October-December plus 6 more months). As the accounting period ends on December 31, the company has used up 3 months of prepaid rent (October-December). Hence, the prepaid rent on the balance sheet at December 31 would be $6,000 (prepaid rent for 6 months: January-June). Therefore, choice A is correct.

Choice B is incorrect as it assumes that the company has not used up any prepaid rent by December 31.

Choice C is incorrect as rent expense would only be recognized for the months of October-December, which amounts to $3,000, not the entire $9,000.

Choice D is incorrect as the company is not earning any revenue from renting the property.

On October 1,a Company Paid $9,000 Rent in Advance