A new company signed a lease for oﬃce space during their ﬁrst month of business. At that time, they paid a total of $16,000 for ﬁrst and last months' rent. At the end of the ﬁrst month, the effect on the ﬁnancial statements would be:
A) $14,000 rent expense
B) $8,000 rent expense and $8,000 prepaid rent
C) $14,000 prepaid rent
D) Nothing is recorded because the company has not made any sales yet

Question

Quizplus · Accepted Answer

The correct answer is B because the company would recognize $8,000 as a rent expense for the first month and classify the other $8,000 as prepaid rent for the last month's rent, which is an asset on the balance sheet.

A New Company Signed a Lease for Oﬃce Space During