Final answer:
On January 1, 2016, Flathound Properties would record the $22,800 received as prepaid rent with a debit to the Cash account and a credit to the Unearned Rent Revenue account. This transaction is recorded as such because the rent is for future services and represents a liability until the services are provided.
Step-by-step explanation:
When Flathound Properties received $22,800 from a tenant as prepaid rent for the entire year of 2016 on January 1, 2016, it would record this transaction in two accounts: Cash and Unearned Rent Revenue. The entry on the books would be a debit to the Cash account and a credit to the Unearned Rent Revenue account. This is because in accrual accounting, money received in advance of providing a service is considered a liability, as the service has not yet been performed.
The journal entry would look as follows:
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- Debit: Cash $22,800
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- Credit: Unearned Rent Revenue $22,800
This entry reflects that the company has an obligation to provide rental services throughout the year and the rent is not considered as earned revenue until the company actually provides the rental services for each period.