Brief Exercise 36 Oriole Corporation owns a warehouse On Nov

Brief Exercise 3-6 Oriole Corporation owns a warehouse. On November 1, it rented storage space to a lessee (tenant) for 3 months for a total cash payment of $3,270 received in advance. Prepare Oriole\'s November 1 journal entry and the December 31 annual adjusting entry. (Credit account titles are automatically indented when amount is entered Do not indent manually. If no entry is required, select \"No entry\" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit

Solution

Rent for 3 months was received in advance on November 1

Journal Entry at the time of receipt of rent

Cash    $3,270

    Advance Rent    $3,270

(Being rent received in advance for 3 months – November to January accounted for)

Advance rent account is a liability account and Income will be recognized and converted from this account when time period will lapse

On December 31, 2 months have lapsed out of 3 month’s rent and so 2 months’ rent will be accounted as Income

Rent to be accounted as Income

= Total amount received x Lapsed period / Total period

= $3,270 x 2 / 3

= $2,180

Journal Entry on December 31 to recognize Income

Advance Rent    $2,180

        Rent Income    $2,180

(Being rent of 2 months recognized as Income)