Question

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

Answer 1

The answer is true

Step-by-step explanation:

Prepaid rent expense is an amount that has been paid in advance. Money is paid before the benefits are enjoyed. This prepaid expense is an asset

The expense is recognized monthly and prepaid rent is decreased by the same value.

In this example, Monthly expense is$1,500 ($18,000/12).

So rent expense is charged to income statement monthly by $1,500 and prepaid rent is decreased by the same value.

Jan. 1 to December 1 is 11months.

So for 11 months, we have 11 x $1,500 which equals $16,500

So what remain at Dec. 1 is $18,000 - $16,500 which is $1,500.

The remaining balance in prepaid rent is $1,500

Answer 2

True

Step-by-step explanation:

If the company paid $18,000 in advance for the rent of the whole year, then each month's rent = $18,000 / 12 = $1,500

So each month the account balance should decrease by $1,500 until finally on December 1st it is only $1,500.

Prepaid rent is an asset account, so it should have been debited 18,000 in January and each following month it must be credited 1,500.