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14 December, 14:51

Action Real Estate received a check for $18k on Jul 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credit for the full $18k. Financial statements will be prepared on Jul 31. Action Real Estate should make the following adjusting entry on Jul 31

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  1. 14 December, 15:09
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    Since in the given question, the action real estate has received a check of $18k on July 1 which represents a 6 month advance payment. That means, we have to calculate for full year payment instead of 6 month.

    So,

    For a year = (Amount * 12 months) : 6 months

    = $18 k * 12 : 6

    = $36 k

    Now, we have to find for 1 month because the adjusting entry was made on July 31 and the check is received on July 1.

    So,

    1 month = Yearly Amount : Total months in a year

    = $36 k : 12 months

    =$3 k

    Hence, the adjusting entry would be:

    Unearned Rent A/c Dr $3 k

    To Rental revenue $3 k

    (Being adjusted entry recorded)
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