Question

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,225. Fragmental collected the entire $9,800 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

Answer 1

Dec 31 Unearned rent revenue $ 3675 Dr

Rent Revenue $3675 Cr

Step-by-step explanation:

The adjusting entries are made at the end of period and as the rent revenue is received in advance, it is treated as a liability until it is earned.On 31 December, 3 months rent revenue has been eanred and as this revenue belongs to this year, following the accrual principle, we will record this as revenue and decrease the liability.

The three months rent revenue = 1225 * 3 = 3675