On November 1, 2019, Gordon Co. collected $31,800 in cash from its tenant as an advance rent payment on its store location. The

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1 month ago

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On November 1, 2019, Gordon Co. collected $31,800 in cash from its tenant as an advance rent payment on its store location. The

six-month lease period ends on April 30, 2020, at which time the contract may be renewed.
a. Use the horizontal model to record the effect of the six months of rent collected in advance on November 1, 2016 for Gordon Co.
b. Use the horizontal model to record the effect of the adjustment that will be made at the end of each month to show the amount of rent "earned" during the month for Gordon Co.
c. If a larger advance collection was received on November 1, 2016, that had covered a longer 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, 2016, balance sheet?

Business

1 answer:

Scilla [3.5K] · Answer 1 · 2026-03-06T17:54:22+03:00

Answer:

a. HORIZONTAL METHOD

INCOME STATEMENT

Date Income $ - Expenses $ = Net Income

1 Nov - - - - -

b. adjustment

31 for each rent 5,300 - - 5,300

Month

c. BALANCE SHEET AS OF 31 DEC

Assets = Equity + Liabilities

+ bank $84,800 - prepaid expenses +$84,800

Explanation:

At the point of 1 Nov, there were no transactions recorded in the income statement since the revenue has yet to be realized; only the balance sheet shows + bank $31800 and + income received in advance (a liability) $31800

Each month's rent amounts to $31800/ 6 months =$5300

18 months rent totals to 95400

The unearned amount by December would then equal: 18 months - 2 months earned

= 95400- 10600

=$84,800