Question

Company prepaid three years' rent ($54,000​) on January​ 1, 2021. At December​ 31, 2021​, Company prepared a trial balance and then made the necessary adjusting entry at the end of the year.

Company adjusts its accounts once each year—on December 31.
What amount appears for Rent Expense on company​'s adjusted trial balance at December​ 31, 2021​?

Answer 1

The Rent Expense on the company's adjusted trial balance at December 31, 2021, will be $18,000, which represents one year of the three-year prepaid rent total of $54,000.

Step-by-step explanation:

The company prepaid three years' worth of rent, which amounts to $54,000, on January 1, 2021. To determine the Rent Expense on the company's adjusted trial balance at December 31, 2021, we must recognize the expense incurred for one year of that prepaid amount.

The total prepaid rent is for three years, so the annual rent expense is calculated by dividing $54,000 by 3, which gives us $18,000 per year. At the end of the accounting period on December 31, 2021, one year has passed, so the company needs to recognize one year of the rent expense.

Therefore, the amount that appears for Rent Expense on the company's adjusted trial balance at December 31, 2021, will be $18,000. This reflects the proper matching of expenses with the period in which they are incurred, according to accrual accounting principles.