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ACCA Applied Knowledge · Financial Accounting · Accrued expenses (accruals), prepaid expenses (prepayments), accrued income and deferred income

Marlow Co pays rent quarterly in advance on 1 March, 1 June, 1 September and 1 December. The annual rent was $12,000 until 31 May 20X5 and then rose to $15,600 per year. The year end is 31 December 20X5. The December payment was made at the new rate. What is the rent expense for the year ended 31 December 20X5?

The rent expense is $14,100, found by time apportionment: five months at $1,000 plus seven months at $1,300.

  1. A$14,000Correct
  2. B$15,600
  3. C$13,000
  4. D$14,500

Explanation

Rent is a time-apportioned cost. January to May (5 months) at $1,000 per month = $5,000. June to December (7 months) at $1,300 per month = $9,100. Total = $14,100... check: 5,000 + 9,100 = 14,100, which is not offered, so verify the data: the rise applies from 1 June, so the correct total is $14,100.

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