On January 1 of the current year, Lafferty signs a contract to rent a building for $1,000 per month for the next three years. On that date, Lafferty pays $36,000 for rent. On January 1 when payment is made, what is the amount of the prepaid rent that should be classified as a noncurrent asset?
What will be an ideal response?
$24,000
Details:
Whether a prepaid expense is current or noncurrent depends on when its benefits will be realized. For example, if rent on an office building were prepaid for one year, then the prepayment is classified as a current asset.
However, if rent were prepaid for a period extending beyond the coming year, a portion of the prepayment is classified as an other asset, a long-term asset.
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