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A company pays its rent quarterly in advance.A payment of $3000 was made on 28/10/2014 for the period of 31/1/2015.
What accrual or prepayment should appear on the financial statment of 31/12/2014
a)1000 prepayment
b)2000 accural
c)1000 accrual
d)2000 prepayment
Right answer is 1000 prepayment. How?
I have calculated my answer as follow
3000 per quarter
3000*3=9000 per year
9000/12=750 per month
750*3 months= 2250.
which is not in option. as it is said in your lectures only expense of the same year will be recorded in FS of same year.Thanks
Draw a time – a line with marks for the payment date 31-Oct, y/e 31-Dec and the date for which the rent is being paid (up to 31-Jan).
Payment is in advance so the answer must be a prepayment. 3,000 a quarter is 1,000 a month so Jan is prepaid.
Regarding your calculation – there are 4, not 3, quarters in a year.
Draw a time – a line with marks for the payment date 31-Oct, y/e 31-Dec and the date for which the rent is being paid (up to 31-Jan).
Payment is in advance so the answer must be a prepayment. 3,000 a quarter is 1,000 a month so Jan is prepaid.
Regarding your calculation – there are 4, not 3, quarters in a year.
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