Prepaid assets are valued on the balance sheet at
A)cost paid to acquire the asset.
B)acquisition cost less accumulated depreciation.
C)cost less expired portion.
D)replacement cost.
E)present value of future cash flows.

Question

Quizplus · Accepted Answer

Prepaid assets are those expenses that have been paid in advance, such as prepaid rent, insurance, or taxes. These assets are recorded on the balance sheet at cost less the expired portion, since their value decreases as time goes by. For instance, if a company pays for a 12-month insurance policy on January 1st, but the policy covers from February 1st to January 31st of the following year, then at the end of each month, the company would reduce the prepaid asset by one-twelfth of the cost, to represent the portion that has expired or been used up. Therefore, the balance sheet should reflect the remaining (unexpired) portion of the prepaid asset, which represents a future economic benefit for the company.

Prepaid Assets Are Valued on the Balance Sheet at