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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Garcia Company rents out a portion of its building to Jerry Company for $1,000 per month. On August 1, Jerry paid Garcia $12,000 for 1 year of rent in advance. Prepare journal entries for Garcia to record the collection of rent and the related year-end adjusting entry on December 31.

To determine

Prepare the journal entry to record the collection of rent and year-end adjusting for Company G.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

To record the journal entry for the collection of rent:

DateAccount title and explanationDebit ($)Credit ($)
August 1Cash12,000 
 Unearned rent 12,000
 (To record the collection of rent)  

Table (1)

  • Cash is an asset account and it is increased. Therefore, debit cash account with $35,000.
  • Unearned rent is a liability account and it is increased. Therefore, credit unearned rent with $12,000...

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