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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Jarem Company showed $189,000 in prepaid rent on December 31, 20X1. On December 31, 20X2, the balance in the prepaid rent account was $226,800. Rent expense for 20X2 was $472,500.

Required:

  1. 1. What amount of cash was paid for rent in 20X2?
  2. 2. CONCEPTUAL CONNECTION What adjustment in prepaid expenses is needed if the indirect method is used to prepare Jarem’s statement of cash flows?

1.

To determine

Compute the amount of cash which was paid as rent in 20X2.

Explanation

Cash:

Cash is the most liquid asset in a company. Being the most liquid asset, cash is used to perform all purchases and do all payments in a company.

Use the following formula to calculate the amount of cash paid as rent:

CashPaidforRent=(RentExpense+EndingBalanceBeginningBalance)

Substitute $472,500 for rent expense, $226,800 for ending balance and $189,000 for beginning balance in the above formula

2.

To determine

Explain the adjustment which can be required to be made in the prepaid expenses if the indirect method is used to prepare the statement of cash flows.

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