Question

For each separate case below, follow the three-step process for adjusting the unearned revenue liability account at 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. 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. Unearned rent revenue 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. Depreciation expense Depreciation expense b. 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. Unearned services revenue 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. Prepaid rent Insurance expense c. 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. Unearned rent revenue 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. Depreciation expense—Truck Unearned rent revenue

Answer 1

Solution a:

Step 1: Determine what the current account balance equals.	$6,000.00
Step 2: Determine what the current account balance should equal.	$5,000.00
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2
Unearned rent Revenue Dr ($6,000/12 months x 2 months)	$1,000.00
To Rent Revenue		$1,000.00

Solution b:

Step 1: Determine what the current account balance equals.	$300.00
Step 2: Determine what the current account balance should equal.	$75.00
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2
Unearned Service Revenue Dr ($300-$75)	$225.00
To Service Revenue		$225.00

Solution c:

Step 1: Determine what the current account balance equals.	$24,000.00
Step 2: Determine what the current account balance should equal.	$8,000.00	($24,000/12monthsx4months)
Step 3: Record the December 31 adjusting entry to get from step 1 to step 2
Unearned rent Revenue Dr	$16,000.00
To Rent Revenue		$16,000.00

Please give thumbs up if you like my answer :-)