Question

Fowler Company's December 31, Year 1 balance sheet showed $1,700 cash, $1,000 common stock, and $700 retained earnings. The company experienced the following event during Year 2.

On October 1, collected $1,200 in advance for an agreement to provide office space for one year beginning immediately.
Based on this information alone,
a. the Year 2 balance sheet would show $300 of unearned rent revenue.
b.Year 3 balance sheet would show $900 of rent revenue.
c. the Year 2 income statement would show $300 of unearned rent revenue.
d. the Year 3 income statement would show $900 of rent revenue.

Answer 1

Based on the information given, the Year 2 balance sheet would show $300 of unearned rent revenue.

The correct answer is A.

Step-by-step explanation:

The event of collecting $1,200 in advance for an agreement to provide office space for one year beginning immediately would have an impact on the balance sheet and income statement in Year 2 and Year 3 respectively.

However, based on the information given alone, we can determine that the Year 2 balance sheet would show $300 of unearned rent revenue (option a) since it is the portion of the collected amount that has not been earned yet. Option b, c, and d are not accurate based on the given information.