On November 1, 2010, Gordon Co. collected $25,200 in cash from its tenant as an advance rent

Question:

On November 1, 2010, Gordon Co. collected $25,200 in cash from its tenant as an advance rent payment on its store location. The six-month lease period ends on April 30, 2011, at which time the contract may be renewed.

Required:

a. Use the horizontal model (or write the journal entries) to record the effects of the following items for Gordon Co.:

1. The six months of rent collected in advance on November 1, 2010.

2. The adjustment that will be made at the end of every month to show the amount of rent “earned” during the month.

b. Calculate the amount of unearned rent that should be shown on the December 31, 2010, balance sheet with respect to this lease.

c. Suppose the advance collection received on November 1, 2010, covered an 18-month lease period at the same amount of rent per month. How should Gordon Co. report the unearned rent amount on its December 31, 2010, balance sheet?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...