Question

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. The journal entry made by Fragmental Co. at year-end on December 31 would be______________.a. A debit to Rent Revenue and a credit to Cash for $2,400.b. A debit to Rent Revenue and a credit to Unearned Rent for $2,400.c. A debit to Cash and a credit to Rent Revenue for $6,400d. A debit to Unearned Rent and a credit to Rent Earned for $2,400.e. A debit to Unearned Rent and a credit to Rent Earned for $4,000.

Answer 1

Answer:

A debit to Unearned Rent and a credit to Rent Earned for $2,400

Explanation:

When cash is collected in advance for revenue from lease, the revenue will not be recorded as revenue until the lease service has been performed. Hence the cash collected in advance will be recorded as

Debit Cash  $6,400

Credit Deferred revenue  $6,400

Being cash collected on October 1 for lease to run for 8 months.

Between October 1 and December 31 is 3 months.

Hence, amount earned

= $800 × 3

= $2,400

To recognize this amount, Debit Unearned/Deferred revenue, credit revenue with the amount earned.