Question

Bonita Realty Management Co. received a check for $32,400 on August 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $32,400. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be a
$13,500 debit to Unearned Rent Revenue and a $13,500 credit to Rent Revenue.
Solution:
The year-end adjusting entry reduces the liability (i.e., Unearned Revenue) and increases Revenue for the amount of revenue earned during this accounting period.
Revenue earned Aug. through Dec. = 32,400 x 5/12 = 13,500

Chapter 4, Learning objective 4 T/F

Answer 1

Answer:

True

Explanation:

The adjusting journal entry is shown below:

Unearned Rent Revenue A/c Dr $13,500

         To Rent revenue A/c $13,500

(Being the unearned rent revenue is recorded)

The computation is given below:

= Check received × number of months ÷ total number of months in a year

= $32,400 × 5 months ÷ 12 months

= $13,500

The five months is calculated from August 1 to December 31