Question

ABC Tax Planning Service started business in January 2018. The company rented an office for $5,400 per month starting from January 1, 2018. On that day, ABC prepaid the rent through June 30. The company makes adjusting entries at the end of each month. What is the balance in the Prepaid Rent account as of April 30, 2018? Select one: A. $900 B. $5,400 C. $10,800 D. $2,700

Answer 1

The balance in the prepaid rent account is $10800 at 30 April. So, option C is the correct answer.

Step-by-step explanation:

The rent is paid at first January for six months is = 5400 * 6 = $32400

On January 1, the company will record a prepaid rent of $32400. The entry will be,

Prepaid rent 32400 Dr

Cash 32400 Cr

The adjusting entries are made at the end of each period. So, out of the total prepaid rent, prepaid rent is credited and is recorded as the rent expense at the end of each month for the amount of $5400.

Rent expense from January to April = 5400 * 4 = $21600

The remaining balance in the prepaid rent account = 32400 - 21600 = 10800