Final answer:
To calculate the unearned rent revenue at year-end for a rental company, the advance payments must be adjusted based on the portion of the lease term that has elapsed as of December 31. The unearned portion remains a liability, while the portion that corresponds to the past rental period is recognized as earned revenue. A journal entry is required to adjust the accounts accordingly.
Step-by-step explanation:
The student is asking about calculating the balance of the unearned rent revenue account at year-end and the adjustment needed for the revenue that's been earned, which is a common scenario in accounting for advance payments. To solve this, one needs to recognize that unearned rent revenue is a liability that represents rent received before the service (the rental period) has been fully provided.
Calculating Unearned Rent Revenue
The unearned rent revenue at the year-end will be the sum of the advance rental payments received which have not yet been earned as of December 31. Here is the step by step calculation:
- For the $24,000 received in June, 6 months of rent have been earned by December 31.
- For the $36,000 received in August, 4 months of rent have been earned by December 31.
- For the $12,000 received in October, 2 months of rent have been earned by December 31.
The adjustment needed at year-end would calculate the rent earned but not yet recognized. The journal entry needed to record the revenue earned would debit the unearned revenue account and credit the revenue account for the respective amounts earned during the year.