CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

On October 1, 2015, Little Company signed an operating lease for a building with Big Company for 6 years, at $10,000 per year. At the inception of the lease, Little paid $20,000, covering rent for the first two years. Little closed its books on December 31 and correctly reported $20,000 as rent expense on its 2015 income tax return. How much should Little report in the 2015 income statement as rent expense?
A. $0
B. $2,500
C. $1,667
Explanation: Rent expense for the first three months (October 1 to December 31, 2015)
= $10,000 x 3/12
= $2,500

User Contributed Comments 5

User Comment
dini85 unable to understand the explanation..can someone help?
sep10 October --> December = 3 months in total. In P&L we should recognize only 3/12 of 10 000$
jpducros Confusing question since we hardly pay 2 years of lease in advance.
SMcalister It's not confusing, its accrual accounting. You should have learned this in Level 1. Bring in a 'prepaid rent expense' on the balance sheet along with this. The income statement is not a cash flow statement.
kamal316 Repeated soo many times .. going through this long q will not add any value anymore ...
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