Question

1. HVG, LLC signed a lease with and paid $12,000 cash to a landlord on December 31, 2017. The payment represents $4,000 for a security deposit and the rest for the first two months of rent for January and February 2018. The most likely effect of this transaction on HVG’s general ledger as of 12/31/2017 is:
   1. No net change in total assets
   2. A decrease in total assets of $4,000.
   3. A decrease in total assets of $8,000.
   4. A decrease in total assets of $12,000.

Answer 1

HVG, LLC signed a lease with and paid $12,000 cash to a landlord on December 31, 2017. The payment represents $4,000 for a security deposit and the rest for the first two months of rent for January and February 2018. The given transaction has the following effect :

i) Assets decreases in the form of cash by $12,000.

ii) An asset is created in the form of security deposit by $4,000.

iii) Another asset is created in the form of prepaid rent by $8,000.

Thus, net effect of the given transaction is that assets remain same as before.

Hence, There is no net change in assets.

Correct option is (a)

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