Answer:
At receipt of payment on November 1, Year 2, entries required
Dr Cash $32,000 (Asset)
Cr Deferred rental revenue $32,000 (Liabilities)
On December 31, adjustment required
Dr Deferred rental revenue $5,333.33 ( Liabilities)
Cr Rental revenue $5,333.33 (Equity)
Hence the accounting equation becomes
$32,000 = $26,666.67 + $5,333.33
Assets (Cash) = Liabilities (Deferred rental revenue) + Equity (Rental revenue)
Explanation:
The accounting equation is given as
Assets = ,Equity + Liabilities
Given that Stokes Company paid Eastport Rentals $32,000 for a 12-month lease on warehouse space, the monthly income to Eastport Rentals
= $32,000/12
= $2,666.67
Hence between November 1, Year 2 and December 31, Year 2, the income earned
= $2,666.67 * 2
= $5,333.33
The amount unearned (or deferred) at December 31, Year 2
= $32,000 - $5,333.33
= $26,666.67
At receipt of payment on November 1, Year 2, entries required
Dr Cash $32,000 (Asset)
Cr Deferred rental revenue $32,000 (Liabilities)
On December 31, adjustment required
Dr Deferred rental revenue $5,333.33 ( Liabilities)
Cr Rental revenue $5,333.33 (Equity)
