On July 1,Madrid Corporation received $7,200 from New Iberia Company for six months rent on a factory building and recorded it as a revenue.What adjusting entry will Madrid make on August 31?

Question

Quizplus · Accepted Answer

The adjusting entry that Madrid Corporation will make on August 31 is to recognize the portion of the rent that has been earned during the month of August. Since the rent was paid for six months, the monthly rent is $7,200/6 = $1,200. Therefore, on August 31, Madrid will recognize $1,200 as rent revenue earned for the month of August. The corresponding entry is a credit to unearned rent (liability account) and a debit to rent revenue (income statement account). The adjusting entry is shown as follows:

Debit: Rent Revenue $1,200
Credit: Unearned Rent $1,200

On July 1,Madrid Corporation Received $7,200 from New Iberia Company