ExpertEasy2 marksMultiple Choice
ACCA · Question 11 · Preparing a trial balance
Section A
Vertex Consulting pays its annual office rent of $24,000 in advance on 1 April each year. The company's financial year-end is 31 December.
What is the correct adjustment required in the financial statements for the year ended 31 December 20X2?
Section A
Vertex Consulting pays its annual office rent of $24,000 in advance on 1 April each year. The company's financial year-end is 31 December.
What is the correct adjustment required in the financial statements for the year ended 31 December 20X2?
Answer options:
A.
Accrual of $6,000
B.
Prepayment of $6,000
C.
Prepayment of $18,000
D.
Accrual of $18,000
How to approach this question
Determine the period the payment covers. Calculate how many months fall after the financial year-end. Multiply the monthly rent by this number of months to find the prepayment.
Full Answer
B.Prepayment of $6,000✓ Correct
The $24,000 payment on 1 April 20X2 covers the period 1 April 20X2 to 31 March 20X3. The financial year ends on 31 December 20X2. Therefore, 3 months of rent (January, February, March 20X3) have been paid in advance. Prepayment = $24,000 * (3/12) = $6,000.
Common mistakes
Calculating the expense for the year ($18,000) and labeling it as the prepayment.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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