Question

Adjustment for Prepaid Rent

Jarem Company showed $15,000 in prepaid rent on December 31, 20X1. On December 31, 20X2, the balance in the prepaid rent account was $16,300. Rent expense for 20X2 was $30,000.

Required:

1. What amount of cash was paid for rent in 20X2?
$

2. CONCEPTUAL CONNECTION What adjustment in prepaid expenses is needed if the indirect method is used to prepare Jarem’s statement of cash flows?
In determining operating cash flow under the indirect method, any increase in a noncash current asset is (deducted from or added to) net income. Thus, since prepaid rent increased by $1,300, this would be (deducted from or added to) net income. The increase in prepaid rent represents (an increase or a decrease) in operating cash outflows.

Answer 1