Question

On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a noncurrent asset

Answer 1

Answer:

$24,000

Explanation:

Given that

Rent of the building per month = $1,000

On that date, the rent value= $36,000

So, the amount of prepaid expenses would be recognized in two ways

As a current asset

= Rent of the building per month × total number of months in a year

= $1,000 × 12 months

= $12,000

As a non-current asset, it would be

= Total rent - prepaid rent

= $36,000 - $12,000

= $24,000