Reference no: EM132561535

Question - The following situation observed by Dupo Limited's senior accountant at December 31, 2019, the company's yearend:

Prepaid expenses include $12,000 in prepaid rent related to the long-term lease of a branch office. When the lease was signed 4 years ago, Dupo had to pay a $6,000 deposit which comprises the final month's rent. Rental rates have since doubled in that location, so an entry has been recorded to reflect this value as follows: "Debit Prepaid Rent $6,000; Credit Rent Expense $6,000". The junior accountant's argument for making this entry is that the company has benefited from the long-term lease and the financial statements should reflect this benefit.

Instructions - For the event above, indicate the accounting assumption, concept, constraint, or recognition criteria that have been violated and provide your reason. Prepare the correcting entry required, or if no entry is required, explain what other change, if any, should be made to ensure that Dupo's financial statements comply with GAAP.