On January 1, the Forman Group leased some equipment on a 5-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. The general journal entry to record the first lease payment on December 31 should be:
A)Debit Rent Expense $15,000; credit Cash $15,000.
B)Debit Rent Expense $75,000; credit Rent Payable $75,000.
C)Debit Rent Expense $15,000; credit Prepaid Rent $15,000.
D)Debit Cash $15,000; credit Prepaid Rent $15,000.
E)Debit Lease Liability $15,000; credit Cash $15,000.

Question

Quizplus · Accepted Answer

Option A records the payment of $15,000 in cash and acknowledges the expense incurred for the year-end rent. This entry properly reflects the operating lease expense and fulfills the matching principle of accounting by recognizing the expense in the year it was incurred. Option B records the full lease amount as a payable, which is not accurate since only one year's lease payment is due. Option C records the lease payment as a prepaid expense, which is not appropriate since the rental period has already passed. Option D records the lease payment as prepaid rent, which is not accurate for the same reason as option C. Option E records the lease payment only as a liability, which leaves out the cash payment and does not recognize the expense incurred.

On January 1, the Forman Group Leased Some Equipment on a 5-Year