Question

On July 1, 2021, Rents-A-Lot Inc. paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2022 financial statements for Rents-A-Lot under both cash- basis and accrual-basis accounting? | $24,000; Accrual-basis# $24,000. A Cash-basis B. Cash-basis $72,000; Accrual-basis $12,000. C. Cash-basis $O: Accrual-basis $24,000. D. Cash-basis $0: Accrual-basis $12.000.

Answer 1

Answer:

Option C is correct.

Cash basis $0

Accrual Basis $24,000

Explanation:

The reason is that under the cash basis, the company would record revenue of $72,000 in the first year which ends on 31 Dec, 2021. And on next two year, there is no revenue recorded under cash basis accounting. But under accrual basis, the expenses and associated revenues must be recorded when they are realized. In the first year the realized amount would depend on the number of months the property was in possession of the Rent Inc. If the number of months that the property was in possession was 12 months then the rental expenses realized would be $24,000 ($72000*12/36). So the correct option would be option C.