Rent Expense Calculation for Year-End

Steps:

• Identify rent rates: $500/month for 8 months (November to June),$600/month for 4 months (July to October), totaling 12 months in the financial year ending 31 October.
• Calculate total expense: (8 × $500) + (4 ×$600) = $4,000 +$2,400 = $6,400.
• Determine accrual basis: Rent paid in advance on the 1st covers each full month, so October's payment (made 1 October) is fully expensed by 31 October.
• Assess balance sheet: No prepaid rent remains at 31 October, as the next payment (1 November) is for the following year.

Why C is correct:

• Matches accrual accounting principle: Expense recognized when incurred ($6,400 total), with no asset/liability for prepaid rent at period-end.

Why the others are wrong:

• A: Overstates expense ($6,300 incorrect total) and adds nonexistent receivable.
• B: Understates expense ($6,000 ignores rate change).
• D: Overstates expense ($6,500) and misclassifies as payable (prepaid is asset, not liability).

Final answer: C