Austin, Inc. made a Prepaid Rent payment of $3,500 on January 1st. The company's monthly rent is $700. The amount of Prepaid Rent that would appear on the January 31 balance sheet after adjustment is:
A) $2,800
B) $700
C) $3,500
D) $1,750

Question

Quizplus · Accepted Answer

Since the company made a Prepaid Rent payment of $3,500 on January 1st and the monthly rent is $700, the Prepaid Rent will cover the rent for 5 months ($3,500/$700 = 5). As of January 31, one month has passed, so the amount of Prepaid Rent that should be left is 4 months worth of rent or $2,800 ($700 x 4). Therefore, the correct answer is choice letter A).