Ludwig Company's prepaid rent was $9,000 at December 31, 2008, and $13,000 at December 31, 2009. Ludwig reported rent expense of $19,000 on the 2009 income statement. What amount would be reported in the statement of cash flows as rent paid using the direct method?

Question

Quizplus · Accepted Answer

The adjustment to prepaid rent during the year is: 
Prepaid rent at Dec 31, 2008 = $9,000
Prepaid rent at Dec 31, 2009 = $13,000
Adjustment to prepaid rent = Increase in prepaid rent = $13,000 - $9,000 = $4,000

Rent expense on the income statement is not necessarily the amount of cash paid for rent. We need to adjust for the change in prepaid rent balance during the year to calculate the cash paid for rent.

Cash paid for rent using the direct method = Rent expense + Decrease in prepaid rent balance
= $19,000 - $4,000 
= $15,000

Therefore, the correct answer is (C) $23,000.

Ludwig Company's Prepaid Rent Was $9,000 at December 31, 2008