On December 1, 2006, Myles Corporation leased office space for 10 years at a monthly rental of $100,000. On that date Morales paid the landlord the following amounts: Rent deposit: $100,000 First month’s rent 100,000 Last month’s rent 100,000 Installation of new walls and offices: 540,000 Total: $840,000 The entire amount of $840,000 was charged to rent expense in 2006. What amount should Myles have charged to expense for the year ended December 31, 2006? A. $100,000. B. $104,500. C. $204,500. D. $550,000.
A (Matching principle) … though question is not coming very clear to me
should be C
B - matching principle as you’d probably create a prepaid asset for the first/last months rent and then expense the 1st month for dec’06 keeping 100k in the prepaid asset and then for the 540,000 in repairs you would split that up over 120 periods (10 years X 12 months per yr) and expense it that way. You expense and match as you use things… so 4500 a month is expensed due to repairs
tony2 Wrote: ------------------------------------------------------- > B - matching principle as you’d probably create a > prepaid asset for the first/last months rent and > then expense the 1st month for dec’06 keeping 100k > in the prepaid asset and then for the 540,000 in > repairs you would split that up over 120 periods > (10 years X 12 months per yr) and expense it that > way. You expense and match as you use things… so > 4500 a month is expensed due to repairs Yes but in the first month you pay deposit plus one month rent which is related to december.
sorry strange, read too quick - didn’t see the deposit… agreed C
B tony is correct Rent expense should include items relevant to the current year. $100,000 + [($540,000 / 10) / 12] Guys: notice that there is only one month left for the year (the lease was signed on Dec 1), and $100,000 is the monthly rent, not annual.
D’Artagnan Wrote: ------------------------------------------------------- > B tony is correct > > Rent expense should include items relevant to the > current year. > $100,000 + [($540,000 / 10) / 12] > > Guys: notice that there is only one month left for > the year (the lease was signed on Dec 1), and > $100,000 is the monthly rent, not annual. Oppps…yes it is true $100000 is a “deposit”
question then being what exactly would happen to a deposit, does it go on the Bal Sht as an asset b/c you assume to get it back? is it a prepaid deposit (asset)
Tony 2, it is a prepaid expense and would recorded as an asset on the balance sheet. B - Rent Expense = $100,000, Depreciation Expense = $4,500