An analysis of Thrift Corp.'s unadjusted prepaid expense account at December 31, Year 2, revealed the following:
An opening balance of $1,500 for Thrift's comprehensive insurance policy. Thrift had paid an annual premium of $3,000 on July 1, Year 1.
A $3,200 annual insurance premium payment made July 1, Year 2.
A $2,000 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 expenses?
$2,000 A
$3,600 B
$1,600 C
$5,200 D
Explanation
Choice “b” is correct. $3,600 prepaid expenses at 12/31/Year 2.
12/31/Year 2
Balance
Annual insurance premium paid 7/1/Year 1
(period benefited – 7/1/Year 1 – 6/30/Year 2)
$ 0
Annual premium paid 7/2/Year 2 on insurance
(period benefited – 7/1/Year 2 – 6/30/Year 3)
($3,200 x 6/12)
1,600
Annual advance rental payment for a warehouse lease
(period benefited – 1/1/Year 3 – 12/31/Year 3)
($2,000 x 12/12)
2,000
Balance at 12/31/Year 2
$ 3,600
This problem driving me crazy here, questions is asking for prepaid expense . Advance rental is not suppose to be an asset ! Confused here
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