Question

On October 1, Year 1, Jason Company paid $3,600 to lease office space for one year beginning immediately. What is the cash outflow for rent that would be reported on the Year 1 statement of cash flows

Answer 1

The cash outflow for rent that would be reported on the Year 1 statement of cash flows is $2,700

What is cashflow?

This is the amount of cash , which a company receives or gives out by the way of payments to its creditors.

Though the amount paid was paid on October 1, Year 1 it will only be expensed from October to December for year 1.

The duration of the payment is 12 months, hence  

Monthly amortization

= $3,600 / 12

= $300

Rent expense for year 1

= $300 × 3

= $900

The ending balance in the prepaid rent account will be  

= $3,600 - $900

= $2,700

This will be the cash outflow for rent that would be reported on the Year 1 statement of cash flows.

Hence, the cash outflow for rent that would be reported on the Year 1 statement of cash flows is $2,700

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