If a company reporting on a calendar year basis, paid $18,000 cash on January 1 for one year of rent in advance and adjusting entries are made at the end of each month, the balance of Prepaid Rent as of December 1 should be $1,500.

Question

Quizplus · Accepted Answer

Since the rent was paid on January 1 for one year and adjusting entries are made at the end of each month, the total amount of prepaid rent should be evenly distributed over the 12 months. Therefore, the monthly amount of prepaid rent is $18,000/12 = $1,500. Since December 1 is the 11th month of the year, the balance of Prepaid Rent should be 11 x $1,500 = $16,500. Therefore, option A is correct.

If a Company Reporting on a Calendar Year Basis, Paid