MC Qu. 232 On October 1, Goodwell Company... On October 1, Goodwell Company rent
ID: 2591557 • Letter: M
Question
MC Qu. 232 On October 1, Goodwell Company... On October 1, Goodwell Company rented warehouse space to a tenant for $3,300 per month and received $16,500 for 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 Unearned Rent account balance at the end of December, after adjustment, should be ferences Multiple Choice $6,600 $9,900 lype here to arch 0 725 AM 12//2017 BAExplanation / Answer
Answer:
The lease has started from October 1 itself and at the end of December 31, the warehouse space would have been used for 3 months i.e from October 1 to December 31.
Since the rent is received in advance for 5 months, therefore, at the end of December, 3 months' rent will be earned and 2 months' rent will remain in unearned rent account. Unearned Rent is a liability and has a credit balance, so we will debit it to reduce it by 3 months. The following adjustment entry will be:
It implies the Unearned rent account balance at the end of December, after adjustment, will be $6600. It is calculated as follows:
Hence, Option A is the correct answer.
Particulars Debit Credit Cash Dr. $ 16,500.00 To Unearned Rent Account ($3300 per month x 5 months) $ 16,500.00 (being rent received in advance) Unearned Rent Account Dr. ($3300 per month x 3 months) $ 9,900.00 To Rent $ 9,900.00 (being rent earned for 3 months)Related Questions
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