9. On December 31st, 2019, the balance of prepayments for Aldgate, Plc. was $3,000. This balance...
9. On December 31st, 2019, the balance of prepayments for Aldgate, Plc. was $3,000. This balance related to Aldgate’s insurance policy. Aldgate had paid an annual premium of $6,000 paid by Aldgate on July 1st, 2019. On July 1st, 2020, Aldgate made another annual insurance premium payment in the amount of $6,400, as well as a $4,000 advance rent payment for a warehouse. The warehouse will be leased for one year starting from January 1st, 2021. What amount should Aldgate report in prepayments in the balance sheet in its December 31st, 2020 balance sheet? Note that the company uses one prepayment account for insurance as well as rent.
Homework Answers
Aldgate will report $7,200 in prepayments in the balance sheet in its December 31st, 2020 balance sheet.
Explanation:
The opening balance of Prepayments of $3,000 will expire in the Year 2019-20. Now Aldgate has made annual insurance premium payment of $6,400 on July 1st, 2020 for which half the benefit is availed in this Year i.e. in 2019-20 (From July 1st, 2020 to December 31st, 2020) and the amount of prepaid insurance will be = $6,400 * 6 Months / 12 Months = $3,200.
Aldgate made another $4,000 advance rent payment for a warehouse for leasing for one year starting from January 1st, 2021. Hence all the amount of $4,000 will be considered as prepaid as benefit of the same will be received in the next year 2020-21.
Hence, prepayments in its December 31st, 2020 balance sheet will be = $3,200 + $4,000 = $7,200
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9. On December 31st, 2019, the balance of prepayments for
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