Final answer:
Under cash basis accounting, the rent expense for Year 1 is the total amount paid, which is $48,000. Under accrual accounting, the expense is based on the amount incurred during Year 1, which is $12,000, reflecting 6 months of rent at $2,000 per month.
Step-by-step explanation:
To determine the rent expense for Year 1 under both cash basis and accrual accounting, we need to first understand the time frames involved. The company paid $48,000 for 24 months, which means the monthly rent is $48,000 / 24 = $2,000.
Under the cash basis accounting, the expense is recognized when the cash is paid. So, for Year 1, which includes July 1 to December 31 (6 months), the entire amount paid is considered an expense. Therefore, the rent expense under cash basis is $48,000 for Year 1.
Under accrual accounting, the expense is recognized when it's incurred regardless of when the cash is paid. From July 1 to December 31 (6 months), the company would have used 6 months of the pre-paid rent. At $2,000 per month, the rent expense under accrual accounting is 6 x $2,000 = $12,000 for Year 1.
So, the correct answer is: Cash basis = $48,000; Accrual = $12,000.