On July 1, 2021, Rents-A-Lot Inc. paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2022 financial statements

On July 1, 2021, Rents-A-Lot Inc. paid $72,000 for 36 months of advance rent on its warehouse. What would be the amount of rent expense in the 2022 financial statements for Rents-A-Lot under both cash-basis and accrual-basis accounting?

A) Cash-basis = $24,000; Accrual-basis = $24,000.

B) Cash-basis = $72,000; Accrual-basis = $12,000.

C) Cash-basis = $0; Accrual-basis = $24,000.

D) Cash-basis = $0; Accrual-basis = $12,000.

Answer: C

Which of the following statements are correct?

For accrual-basis accounting:

(1) record revenues when providing goods and services to customers.

(2) record expenses when cash is paid.

For cash-basis accounting:

(3) record revenue when cash is received.

(4) record expenses when benefit is received.

A) (1) and (4).

B) (2) and (3).

C) (1) and (3).

D) (2) and (4).

Answer: C

A company has the following transactions:

Pay employees' salaries for the current period.

Pay rent in advance.

Pay dividends to stockholders in the current period.

Receive (but do not pay) a utility bill.

Use supplies previously purchased.

How many of these transactions result in an expense being reported in the current period using accrual-basis accounting?

A) 1.

B) 2.

C) 3.

D) 4.

Answer: C

A company has the following transactions:

Pay employees' salaries for the current period.

Pay rent in advance.

Pay dividends to stockholders in the current period.

Receive (but do not pay) a utility bill.

Use supplies previously purchased.

How many of these transactions result in an expense being reported in the current period using cash-basis accounting?

A) 1.

B) 2.

C) 3.

D) 4.

Answer: B

A company has the following three events in December:

December 1 - Pay last month's rent (November), $500.

December 15 - Pay rent for the current month (December), $500.

December 31 - Pay rent for the following year, $6,000.

How much would be recorded as Rent Expense for the month of December using accrual-basis accounting?

A) $6,500.

B) $7,000.

C) $1,000.

D) $500.

Answer: D

The primary difference between accrual-basis and cash-basis accounting is:

A) The timing of when revenues and expenses are recorded.

B) Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting.

C) Accrual-basis accounting violates both the concepts of revenue recognition and expense recognition.

D) Adjusting entries are only a necessary part of cash-basis accounting.

Answer: A