Question

Baltimore Company paid $3,600 cash for the right to use office space during the coming year. Which of the following shows how this event would affect Baltimore's ledger accounts?

Answer 1

When Baltimore Company pays $3,600 cash for the right to use office space during the coming year, it will result in a decrease in the cash account and an increase in the prepaid rent account in their ledger.

Step-by-step explanation:

When Baltimore Company pays $3,600 cash for the right to use office space during the coming year, it will affect the ledger accounts as follows:

1. Decrease in Cash Account: The cash account will be decreased by $3,600 because cash is being paid.
2. Increase in Prepaid Rent Account: The prepaid rent account will be increased by $3,600 because it represents the amount paid in advance for using the office space for the coming year.

Therefore, the event would result in a decrease in the cash account and an increase in the prepaid rent account in Baltimore Company's ledger.