Question

Kiley Co. leased a building, received rent for two years, and a non-returnable security deposit. How should the $600,000 be shown in Kiley's balance sheet on December 31, 2014?

a. $0 Current Liability, $600,000 Long-term Liability
b. $150,000 Current Liability, $300,000 Long-term Liability
c. $300,000 Current Liability, $300,000 Long-term Liability
d. $300,000 Current Liability, $150,000 Long-term Liability

Answer 1

Without the specific details of the lease agreement and the distribution of the $600,000 between rent and a non-returnable security deposit, determining the correct classification between current and long-term liabilities on Kiley Co.'s balance sheet isn't possible from the given choices.

Step-by-step explanation:

The question refers to the appropriate classification of a $600,000 payment received for rent and a non-returnable security deposit in Kiley Co.'s balance sheet as of December 31, 2014. Since the rent has been received for two years, it generally should be recorded as unearned revenue, which is a current liability, because it is expected to be earned within a year. The portion of rent that is for the period beyond one year can possibly be classified as a long-term liability if the lease agreement extends beyond a year from the balance sheet date. The non-returnable security deposit might need to be recognized as a long-term liability as well, depending on the terms of the lease and relevant accounting policies.

However, without more context on the specifics of the payment distribution (how much is allocated to rent versus the security deposit, and the rental period covered), it is not possible to give a definitive answer to the question among the provided choices (a through d). Therefore, additional information is required to accurately categorize these amounts on the balance sheet.