On October 1, Year 1, Jason Company paid $7,200 to lease office space for one year beginning immediately. What is the amount of rent expense that will be reported on the Year 1 income statement and what is the cash outflow for rent that would be reported on the Year 1 statement of cash flows?

Question

Business

Haylie Ortega

18 October, 11:00

On October 1, Year 1, Jason Company paid $7,200 to lease office space for one year beginning immediately. What is the amount of rent expense that will be reported on the Year 1 income statement and what is the cash outflow for rent that would be reported on the Year 1 statement of cash flows?

+4

Answers (1)

Know the Answer?

Mya Medina · Answer 1

The amount of rent expense that will be reported on the Year 1 income statement is $1,800.

The cash outflow for rent that would be reported on the Year 1 statement of cash flows is $5,400.

Explanation:

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 = $7,200/12 = $600

Rent expense for year 1 = $600 * 3 = $1,800

The ending balance in the prepaid rent account will be

= $7,200 - $1,800

= $5,400

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