Exercise 4.9 Adjusting entry for unearned revenue PDF

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This document is the solution to Exercise 4.9 on the topic of Adjusting entry. The exercise is related only to the Unearned revenue adjustment. For those who are finding difficulty in any related question this exercise is a good place to start.
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Exercise 4.9 Adjusting entry for unearned revenue Easy Rentals Ltd received 4 months’ rent in advance from tenants on 1 April 2022. The entire amount of $12 800 was credited to the Unearned Revenue account at this date. Ignore GST. Required (a) Give the adjusting entry at 30 June 2022. Date Particular Debit Credit ($) ($) 1st/04/2022 Cash 12,800 Unearned revenue 12,800 th 30 /06/2022 Unearned revenue 9,600 Rental revenue 9,600 Working out calculation: $ 12,800/4 = $ 3,200 per month $3,200 X 3 = $ 9,600 for the months of April, May and June. (b) What amount (if any) should be reported in the statement of financial position at 30 June 2022? $3,200 will be reported as a current liability under the account name ‘deferred income’ in the statement of financial position at 30 June 2022. Its effect on the financial position statement is that it will reduce the deferred income from $12,800 to $ 3,200 by $9,600 which is the rental revenue earned at 30 June 2022. (c) If no adjusting entry were made on 30 June, by how much would profit be overstated or understated? Would liabilities be overstated or understated? Explain. The failure to adjusting the entry, profit will be understated by $9,600 because the entry should have increased rental revenue with a credit of the amount which the profit is understated and also the entry should have reduced unearned revenue (a liability) with a credit, due to this liability will be overstated by $9,600. (d) What would your adjusting entry be in requirement A if the amount of $12 800 had been credit to Rental Revenue on 1 April 2022? Date Particular Debit ($) Credit ($) 30th/06/2022 Rental revenue 3,200 Unearned revenue 3,200...