Question

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. The journal entry made by Fragmental Co. at year-end on December 31 would be:

A) A debit to Rent Revenue and a credit to Cash for $2,400.
B) A debit to Rent Revenue and a credit to Unearned Rent for $2,400.
C) A debit to Cash and a credit to Rent Revenue for $6,400
D) A debit to Unearned Rent and a credit to Rent Earned for $2,400.
E) A debit to Unearned Rent and a credit to Rent Earned for $4,000.

Answer 1

Answer: A debit to Unearned Rent and a credit to Rent Earned for $2,400

Step-by-step explanation:

The following information can be gotten from the question:

Amount of total rent = $6400

Since the cash relating to rent was collected and recorded on October 1, the amount unearned will be calculated using 3 months i.e from October to December. This will be:

= 3/8 × $6400

= 3 × $800

= $2400

The journal entry will be:

Unearned rent A/c Dr $2400

Rent A/c Cr $2400

A debit to Unearned Rent and a credit to Rent Earned for $2,400