Kirkland Company's prepaid rent was $40,000 at December 31,2014,and $15,000 at December 31,2013.Kirkland's income statement for 2014 reported rent expense as $10,000.What amount of cash disbursements for rent would be reported in Kirkland's net cash flows from operating activities for 2014 presented on a direct basis?

Question

Quizplus · Accepted Answer

To calculate the cash disbursements for rent, we need to look at the change in the prepaid rent balance from 2013 to 2014. The prepaid rent decreased by $25,000 ($40,000 - $15,000), which means that $25,000 worth of rent was used up in 2014. However, the income statement only reported rent expense of $10,000, which means that $15,000 of the prepaid rent was used to pay for rent in a future period. Therefore, the cash disbursements for rent in 2014 would be $25,000 - $15,000 = $10,000. This would be reported in the net cash flows from operating activities for 2014 presented on a direct basis.

Kirkland Company's Prepaid Rent Was $40,000 at December 31,2014,and $15,000