Exercise 3-4A (Algo) Prepaid items on financial statements LO 3-2 Life, Inc. experienced the following events in Year 1, Its first year of operation: 1. Performed counseling services for $18,800 cash. 2. On February 1, Year 1, paid $12,600 cash to rent office space for the coming year. 3. Adjusted the accounts to reflect the amount of rent used during the year. Required Based on this information alone: ces a. Record the events in accounts under an accounting equation. (Enter any decreases to account balances with a minus sign.) LIFE, INC. Effect of Events on the Accounting Equation Event 1 Performed services 2 Prepaid rent 3 Used rent Totals Stockholders' Assets Equity Cash Retained Prepaid Rent Earnings 27,600 (19,200) 19,200 (17,600) 17,600 8,400 1,600 17,600 b. Prepare an income statement, balance sheet, and statement of cash flows for the Year 1 accounting period. (In statement of cash flows, cash outflows should be indicated with a minus sign.) LIFE, INC. Income Statement For the Year Ended December 31, Year 1 Assets LIFE, INC. Balance Sheet As of December 31, Year 1 Total assets Liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity LIFE, INC. Statement of Cash Flows For the Year Ended December 31, Year 1 Cash flows from operating activities es Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash Ending cash balance c. Ignoring all other future events, what is the amount of rent expense that would be recognized in Year 2? Rent expense to be recognized in Year 2