Effect of prepaid rent on the accounting equation and financialstatements
The following events apply to 2011. the first year of operations of Shay Services:
1. Acquired $25,000 cash from the issue of common stock.
2. Paid $18,000 cash in advance for a one-year rental contract for office space.
3. Provided services for $28,000 cash.
4. Adjusted the records to recognize the use of the office space. The one-year contract started on April 1, 2011. The adjustment was made as of December 31, 2011.
Required
a. Write an accounting equation and record the effects of each accounting event under the appropriate general ledger account headings.
b. Prepare a balance sheet at the end of the 2011 accounting period.
e. What amount of rent expense will Shay report on the 2011 income statement?
d. What amount of net cash flow from operating activities will Shay report on the 2011 statement of cash flows?
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