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The Krug Company collected $9,000 rent in advance on November 1, debiting Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months' rent in advance and occupancy began November 1.
Unearned rent revenue:
Step 1: Determine what the current account balance equals.
Step 2: Determine what the current account balance should equal.
Step 3. Record the December 31 adjusting entry to get from step 1 to step 2.

Respuesta :

Answer:

The current  account balance is $9000 in cash and $9000 in unearned rent.

The current account balances should be cash $9000, unearned rent $7500 and rent revenue $1500.

Adjusting entries required

Debit Unearned rent   $1500

Credit  Rent revenue    $1500

Explanation:

When cash is collected in advance, an asset is created in form of cash and a liability in form of deferred/unearned revenue. As revenue is earned, a debit is posted to unearned revenue and a credit to revenue.

The accounting equation is

Assets = liabilities + equity

Hence when cash was collected in advance

Debit Cash $9,000

Credit Unearned rent $9,000

When revenue is earned between November 1 and December 31, amount earned

= 2/12 × $9000

= $1500

Balance in Unearned rent account = $9000 - $1500

= $7500

The current  account balance is $9000 in cash and $9000 in unearned rent.

The current account balances should be cash $9000, unearned rent $7500 and rent revenue $1500.

Adjusting entries required

Debit Unearned rent   $1500

Credit  Rent revenue    $1500

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