FathinYukiko
Oct 29, 2013, 07:58 AM
Actual question:
On 1 January 2009 a business had prepaid rent of $50. During 2009, three rent payments were made of $250 each. On 31 Dec 2009, the business still owes $200 rent on account for 2009.
The business owner has charged the rent payments made during 2009 in his income (profit and loss) account.
What is the effect on net profit?
Answer choices given:
A $200 too high
B $200 too low
C $250 too high
D $250 too low
What I understand:
So the business had a prepaid rent of $50 in the beginning of the year.
During the year, the business paid $750 ($250x3).
At the end of the year there was a balance b/d of $200 in the account.
I calculated the amount to be transferred to income account is $250.
But I don't know how it affects the net profit in terms of too high/ too low. Please help! Thank you in advance.
On 1 January 2009 a business had prepaid rent of $50. During 2009, three rent payments were made of $250 each. On 31 Dec 2009, the business still owes $200 rent on account for 2009.
The business owner has charged the rent payments made during 2009 in his income (profit and loss) account.
What is the effect on net profit?
Answer choices given:
A $200 too high
B $200 too low
C $250 too high
D $250 too low
What I understand:
So the business had a prepaid rent of $50 in the beginning of the year.
During the year, the business paid $750 ($250x3).
At the end of the year there was a balance b/d of $200 in the account.
I calculated the amount to be transferred to income account is $250.
But I don't know how it affects the net profit in terms of too high/ too low. Please help! Thank you in advance.