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/