[goods4188]

An analysis of Thrift Corp.’s unadjusted prepaid expense account at December 31, Year 2, Revealed the following:

An opening balance of $1500 for Thrift’s comprehensive policy. Thrift had paid an anual premium of $3,000 on July 1, Year1

A $3,200 anual insurance premium patyment made July 1, Year 2.

A $2000 advance rental payment for a warehouse Thrift leased for one year beginning January 1, Year 3.

In its December 31, Year 2 balance sheet, what amount should Thrift report as prepaid expense?

a. 5200

b. 3600

c. 2000

d. 1600

anwser is B

I do not get why the 2000 rental payment is in cluded when it is for the next year… please put this into english for me.

[mla1169]

Half of the insurance is prepaid because it is an annual expense paid on 7/1, so $1600 was used in year and will appear on the income statement, the other half will be in prepaid on the balance sheet. Also in prepaid on the balance sheet will be the $2000 because none of it is an expense (income statement) in year 2. So $1600 plus $2000 is your $3,600 in prepaid expenses.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[jenuno01]

It's included because of the matching principle… under accrual accounting, it has been paid but not incurred. In other words, it is a pre-payment for an expense occuring next year… Prepaid expenses are assets on the balance sheet. By definition, an asset is one that provides future economic benefits… by pre-paying the expense now, the company benefits in the future (next year)… hope this helps.

Class of 2012

[goods4188]

Wow, Thanks a ton. I was really misinterpreting what the question was asking. I was looking at it as an expense account not an asset.

Thanks again!

[mla1169]

Yeah the word “expense” was supposed to be a curve ball, just take it in the context of “balance sheet”

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Givemesleep]

If this is as hard as FAR gets I will get a 99. No offense,

If you don't know that prepaid expenses are balance sheet

Account, that's big trouble. Keep studying you will get it

Reg 11/15/2011 - 80
Aud 02/28/2012 - 81
Bec 05/31/2012 - 78
Far 08/31/2012 - 83 Do you believe in Miracles, YES !!!

CPA License received 10/2012 !!
CFE License received 04/2013 !!
EA License received

Givemesleep

[Anonymous]

well that was rude….

[jenuno01]

Ha! Yeah… I wish that was as hard as FAR got.

Class of 2012

[Minimorty]

This is like one of the first things you learn in Into to Financial Accounting…..

[jeff]

Manners, people manners.

If people are stuck – I would rather them ask what might seem like an obvious Accounting 101 question to everyone else.

When did another71 turn into “Mean Girls”? … not that I've ever seen Mean Girls…

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Minimorty]

You've totally seen Mean Girls….

I should have made my post more clear in that I was not directing my comment at the OP, but rather defending @Givemesleep because I did not find his comment to be rude. It was on point.

[Author]

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