Question

On December 3, Franklin Company received $6,000, covering December and January rent from their Franklin Company initially records all rent payments received as unearned rent. The unearned or deferred rent needs an adjusting entry on December 31st. Which is the appropriate adjusting entry?

Answer 1

The appropriate adjusting entry on December 31st for Franklin Company is to debit Unearned Rent for $3,000, reflecting rent earned for December, and credit Rent Revenue for $3,000, recognizing the earned revenue.

Step-by-step explanation:

The correct adjusting entry for Franklin Company on December 31st involves recognizing the rent for December that has been earned while still reflecting that the rent for January is unearned. As Franklin Company received $6,000 for two months' rent, half of that amount pertains to December, and the other half to January. Therefore, on December 31st, the company needs to recognize $3,000 as earned rent.

The adjusting entry would be:

• Debit Unearned Rent (Liability) $3,000
• Credit Rent Revenue $3,000

This entry decreases the liability account Unearned Rent by $3,000, reflecting that part of the prepayment is now earned, and it increases the income account Rent Revenue by the same amount, reflecting the revenue earned for the month of December.