D is corrent. The problem involves uneven rent payments, and accounting standards require rent expense to be recognized evenly over the contract period. The rent per month to be paid over the 60-month period can be calculated as follows:| First 3 months | | $ 0 | | Next 9 months | 17,500 × 9 | 157,500 | | Year 2 | 19,000 × 12 | 228,000 | | Year 3 | 20,500 × 12 | 246,000 | | Year 4 | 23,000 × 12 | 276,000 | | Year 5 | 24,500 × 12 | 294,000 | | Total rent payments | | $1,201,500 | | Divided by 60 months | | ÷ 60 months | | | | $ 20,025 per month |
The amount of rent paid as of December 31, year 4, is| July 1, year 1 to June 30, year 2 | $157,500 | | July 1, year 2 to June 30, year 3 | 228,000 | | July 1, year 3 to June 30, year 4 | 246,000 | | July 1, year 4 to December 30, year 4 | 138,000 (6 months) | | Total rent paid | $769,500 |
The amount of rent that should be recognized as total rent expense for the period July 1, year 1, to December 31, year 4, is $841,050 (42 months × $20,025 per month). The correct answer is $71,550 ($841,050 – $769,500), the amount of rent that should be recorded as deferred/accrued rent expense. Note that the question asks for deferred rent but in this case the rent is actually accrued (payable).A is incorrect. The problem involves uneven rent payments, and accounting standards require rent expense to be recognized evenly over the contract period. The rent per month to be paid over the 60-month period can be calculated as follows:| First 3 months | | $ 0 | | Next 9 months | 17,500 × 9 | 157,500 | | Year 2 | 19,000 × 12 | 228,000 | | Year 3 | 20,500 × 12 | 246,000 | | Year 4 | 23,000 × 12 | 276,000 | | Year 5 | 24,500 × 12 | 294,000 | | Total rent payments | | $1,201,500 | | Divided by 60 months | | ÷ 60 months | | | | $ 20,025 per month |
The amount of rent paid as of December 31, year 4, is| July 1, year 1 to June 30, year 2 | $157,500 | | July 1, year 2 to June 30, year 3 | 228,000 | | July 1, year 3 to June 30, year 4 | 246,000 | | July 1, year 4 to December 30, year 4 | 138,000 (6 months) | | Total rent paid | $769,500 |
The amount of rent that should be recognized as total rent expense for the period July 1, year 1, to December 31, year 4, is $841,050 (42 months × $20,025 per month). The correct answer is $71,550 ($841,050 – $769,500), the amount of rent that should be recorded as deferred/accrued rent expense. Note that the question asks for deferred rent but in this case the rent is actually accrued (payable).B is incorrect. The problem involves uneven rent payments, and accounting standards require rent expense to be recognized evenly over the contract period. The rent per month to be paid over the 60-month period can be calculated as follows:| First 3 months | | $ 0 | | Next 9 months | 17,500 × 9 | 157,500 | | Year 2 | 19,000 × 12 | 228,000 | | Year 3 | 20,500 × 12 | 246,000 | | Year 4 | 23,000 × 12 | 276,000 | | Year 5 | 24,500 × 12 | 294,000 | | Total rent payments | | $1,201,500 | | Divided by 60 months | | ÷ 60 months | | | | $ 20,025 per month |
The amount of rent paid as of December 31, year 4, is| July 1, year 1 to June 30, year 2 | $157,500 | | July 1, year 2 to June 30, year 3 | 228,000 | | July 1, year 3 to June 30, year 4 | 246,000 | | July 1, year 4 to December 30, year 4 | 138,000 (6 months) | | Total rent paid | $769,500 |
The amount of rent that should be recognized as total rent expense for the period July 1, year 1, to December 31, year 4, is $841,050 (42 months × $20,025 per month). The correct answer is $71,550 ($841,050 – $769,500), the amount of rent that should be recorded as deferred/accrued rent expense. Note that the question asks for deferred rent but in this case the rent is actually accrued (payable).C is incorrect. The problem involves uneven rent payments, and accounting standards require rent expense to be recognized evenly over the contract period. The rent per month to be paid over the 60-month period can be calculated as follows:| First 3 months | | $ 0 | | Next 9 months | 17,500 × 9 | 157,500 | | Year 2 | 19,000 × 12 | 228,000 | | Year 3 | 20,500 × 12 | 246,000 | | Year 4 | 23,000 × 12 | 276,000 | | Year 5 | 24,500 × 12 | 294,000 | | Total rent payments | | $1,201,500 | | Divided by 60 months | | ÷ 60 months | | | | $ 20,025 per month |
The amount of rent paid as of December 31, year 4, is| July 1, year 1 to June 30, year 2 | $157,500 | | July 1, year 2 to June 30, year 3 | 228,000 | | July 1, year 3 to June 30, year 4 | 246,000 | | July 1, year 4 to December 30, year 4 | 138,000 (6 months) | | Total rent paid | $769,500 |
The amount of rent that should be recognized as total rent expense for the period July 1, year 1, to December 31, year 4, is $841,050 (42 months × $20,025 per month). The correct answer is $71,550 ($841,050 – $769,500), the amount of rent that should be recorded as deferred/accrued rent expense. Note that the question asks for deferred rent but in this case the rent is actually accrued (payable). |
