Question

Bates Company paid $1,600 cash for the right to use office space during the coming year. Which of the following shows how this event would affect Bates' ledger accounts?

1) 1,600 1,600
2) (1,600) 1,600
3) 1,600 1,600
4) (1,600) (1,600)

Answer 1

The correct option that shows how this event would affect Bates' ledger accounts is option 3) 1,600 1,600.

Step-by-step explanation:

The correct option that shows how this event would affect Bates' ledger accounts is option 3) 1,600 1,600.

When Bates Company pays $1,600 cash for the right to use office space during the coming year, it will decrease the cash account by $1,600. At the same time, it will increase the prepaid rent account by $1,600 since it has now paid in advance for the office space.

Therefore, the correct journal entry to record this transaction would be:

1. Debit Prepaid Rent $1,600
2. Credit Cash $1,600