Question

For each case below, follow the three-step process for adjusting the unearned revenue liability

account on December 31. 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. Assume no other adjusting entries are made during the year.

a. Unearned Rent Revenue. The Krug Company collected \(6,000 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.

b. Unearned Services Revenue. The company charges \)75 per month to spray a house for insects. A

customer paid \(300 on October 1 in advance for four treatments, which was recorded with a debit to

Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments

for the customer.

c. Unearned Rent Revenue. On September 1, a client paid the company \)24,000 cash for six months of

rent in advance (the client leased a building and took occupancy immediately). The company recorded

the cash as Unearned Rent Revenue.

Short answer

The unearned rent account is debited and rent revenue is credited with $16,000.

Step-by-step solution

Definition of rent revenue

Rent revenue is the revenue that is generated by rent.

Current account balance equals

The current account balance equals $24,000

The current account balance should equal.

The current account balance should equal $8,000

Journal entry

	Journal entry
Date	Particulars	Debit	Credit
December 31	Unearned Rent Revenue ($24,000 - $8,000)	$16,000
	Rent Revenue		$16,000
	(Being adjusting entry for rent)