Question

Murphy Company sublet a portion of its warehouse for five years at an annual rental of $75,000, beginning on May 1, 2020. The tenant, Sheri Charter, paid one year's rent in advance, which Murphy recorded as a credit to Unearned Rent Revenue. Murphy reports on a calendar-year basis. The adjustment on December 31, 2020 for Murphy should be:

Answer 1

Dr Unearned Rent Revenue$50,000

Cr Rent Revenue $50,000

Step-by-step explanation:

Preparation of the adjustment on December 31, 2020 for Murphy

Based on the information given The Journal entry adjustment on December 31, 2020 for Murphy should be:

31-Dec-20

Dr Unearned Rent Revenue$50,000

Cr Rent Revenue $50,000

(Being to record revenue earned)

Numbers of months that was passed by will be 8 months which is from May to December which means that the Amount of Rent revenue earned till 31 Dec 2020 will be calculated as :

Rent revenue= $ 75,000 x 8 months / 12 months

Rent revenue= $ 50,000