Question

On October 1, Vista View Company rented warehouse space to a tenant for $2600 per month. The tenant paid five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The adjusting entry needed on December 31 is:

Answer 1

December 31

Unearned Rent 7800 Dr

Rent Revenue 7800 Cr

Step-by-step explanation:

The rent received in advance for 5 months was $13000 and it was recorded as a debit to cash and a credit to unearned rent which is a liability. On 31 December, the rent for 3 months from October to December was earned and it should be recorded as a revenue. The entry would be to debit the unearned rent liability for 3 months worth of rent of $7800 and credit the rent revenue account by the same amount.