Final answer:
The adjusting entry for Pappy Corporation on December 31, 2014 is to recognize the portion of the one-year rent that has been earned by the end of the year. This is recorded by debiting the Unearned Rent Revenue account and crediting the Rent Revenue account for the amount earned.
Step-by-step explanation:
The December 31, 2014 adjusting entry for Pappy Corporation would be to recognize the portion of the one-year rent that has been earned by the end of the year. Since the advance payment was made on September 1, 2014, there are 4 months remaining in the year (September, October, November, December).
To record the adjustment, we need to debit the Unearned Rent Revenue account for the amount earned during those 4 months. Since the total amount received was $24,000, and 1/12th of that amount was earned each month, the amount earned by December 31, 2014 is $8,000 (4 months x $2,000 per month).
The adjusting entry will be:
- Debit: Unearned Rent Revenue $8,000
- Credit: Rent Revenue $8,000