Grade 12 accounting question?

Question

Hi, please help me with the following question, given that a company's fiscal year ends on Dec 31 2008.

A portion of the company's building has been converted into a snack bar that has been rented to the Ono Food Corp. since July 1, 2007, at a rate of $7,200 per year payable each July 1.

I am certain that the amount is $3,600, but what do I debit and what do I credit?

thank you

Answer 1

$7,200 is payable each July 1, so journal entry:

July 1, 2007

Dr Cash 7,200

Cr Unearned rental revenue 7,200



Dec 31, 2007

Dr Unearned rental revenue 3,600

Cr Rental revenue 3,600



June 30, 2008

Dr Unearned rental revenue 3,600

Cr Rental revenue 3,600



By June 30, your unearned rental revenue a/c balance is 0 cos you've earned all of it. On July 1, 2008, the tenant should pay $7,200 again and the whole sequence is repeated.

Answer 2

this is the case for when the company is recording the 3600, usually this is the text book example. this is assuming that cash hasn't been collected at July 1, 2007, but will be collected as of July 1, 2008.



rent receivable 3600 debit

rent revenue 3600 credit





for the case for Ono Food Corp.:

rent expense 3600 debit

rent payable 3600 credit



if they had pre paid rent on July 1, 2007, as in the company had collected a 7200 payment for one year at July 1, 2007, then the entries looks different, because cash will be collected again at July 1, 2008.



for the company that rented the building to Ono:

defferred rent 3600 debit

cash 3600 credit



for Ono Corp.:

rent expense 3600 debit

prepaid rent 3600 credit



question is kinda vague. it doesn't give any clue as to if cash was collected on July 1, 2007, but it just says that on every July 1 cash is collected.

good luck.

Answer 3

debit cash, credit rental revenue/