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After the 30 June adjusting entry for a $12,000 annual rent prepayment made on 1 June, what amount of Prepaid Rent is reported on the statement of financial position?
A$1,000
B$11,000
C$12,000
D$10,000
Answer & Solution
Correct answer: B. $11,000
1. Monthly rent expired $= 12{,}000 \div 12 = 1{,}000$.
2. Remaining asset $= 12{,}000 - 1{,}000 = 11{,}000$.
3. Hence B is correct.
4. A is the amount expensed for June; C is the unadjusted balance; D would require two months expired.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §2.3.1 "Prepaid Rent—Deferred Expense", p.67_
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