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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Unearned Rent Revenue

EWO Property Management leases commercial properties. A new client signs a 3-year lease and agrees to pay the first 2 months in advance. The monthly rent is $85,000.

Required:

Prepare the journal entry to record (1) the customers' prepayment of 2 months' rent and (2) the necessary adjusting entry after 1 month has passed.

To determine

Concept introduction:

Liabilities:

Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.

To prepare:

The journal entries to record the customer’s prepayment and adjusting entry.

Explanation

The journal entries to record the customer’s prepayment and adjusting entry are explained as follows:

Journal Entries
# Account Titles Debit Credit
1 Cash (85000*2) $ 170,000

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