Question

Suppose on January 1 Alan's Tavern prepaid rent of $6,000 for the full year.

At August 31, how much rent expense should be recorded for the period January 1 through August 31?
At August 31, Alan's Tavern should record rent expense of ________

Answer 1

Alan's Tavern should record a rent expense of $4,000 for the period January 1 through August 31. This is calculated by dividing the annual prepayment by 12 to get the monthly expense and then multiplying by 8 for the number of months passed.

Step-by-step explanation:

At August 31, Alan's Tavern should record a rent expense proportional to the amount of time that has passed in the lease year. Since the rent was prepaid for the full year at $6,000, to find the expense for eight months, we divide the annual payment by 12 to find the monthly rent cost and then multiply by 8 for the months January through August.

The calculation is as follows: ($6,000 ÷ 12 months) × 8 months = $500 per month × 8 months = $4,000. Therefore, the recorded rent expense by August 31 should be $4,000.