Question
In: Accounting
Fragmental Co. leased a portion of its store to another company for eight months beginning on...
Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,150. Fragmental collected the entire $9,200 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:
Multiple Choice
-
A debit to Rent Revenue and a credit to Cash for $3,450.
-
A debit to Rent Revenue and a credit to Unearned Rent for $3,450.
-
A debit to Cash and a credit to Rent Revenue for $9,200.
-
A debit to Unearned Rent and a credit to Rent Revenue for $3,450.
-
A debit to Unearned Rent and a credit to Rent Revenue for $5,750
Solutions
Expert Solution
Answer
Option d
Explanation
Unearned rent a/c Dr. $3,450
To Rent revenue Cr. $3,450
Unearned rent is debited because unearned rent is the liability of the company. Value of Unearned rent is reduced due to the adjustment of the unearned rent into the rent revenue of the company and a decrease in the value of unearned rent is always debited as it is a liability.
Rent revenue is credited because it is a revenue/gain of the company and all the revenue/gains of the company are always credited in the books of accounts.
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