(Solved): Arkansas company sublet a portion of its office space for ten years at an annual rental of $36,000, begin

Arkansas company sublet a portion of its office space for ten years at an annual rental of $36,000, beginning on May 1. The tenant is required to pay one year’s rent in advance, which Arkansas recorded as a credit to Rental Income. Arkansas reports on a calendar-year basis. The adjustment on Decemeber 31 of the first year should be

Expert Answer

 

The crediting to rental income is not correct the journal entry when we receive the rent is

Cash(db) 36000

Unearned rental income(cr) 36000

Since it is given calendar basis so it is jan to Dec, the dec 31st rental income needs to be recorded for 8 months

=(8/12)*36000=24000

Unearned rental income(db) 24000

rental income(cr) 24000

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