Greensboro Properties Inc. owns a building in which it leases office space to small businesses and professionals. During 2011, Greensboro Properties engaged in the following transactions:
a. On March 1, Greensboro Properties paid $10,500 in advance to Patterson Insurance Company for one year of insurance beginning March 1, 2011. The full amount of the prepayment was debited to prepaid insurance.
b. On May 1, Greensboro Properties received $30,000 for one year’s rent from Angela Cottrell, a lawyer and new tenant. Greensboro Properties credited unearned rent revenue for the full amount collected from Cottrell.
c. On July 31, Greensboro Properties received $240,000 for six months’ rent on an office building that is occupied by Newnan and Calhoun, a regional accounting firm. The rental period begins on August 1, 2011. The full amount received was credited to unearned rent revenue.
d. On November 1, Greensboro Properties paid $4,500 to Pinkerton Security for three months’ security services beginning on that date. The entire amount was debited to prepaid security services.
1. Prepare the journal entry to record the receipt or payment of cash for each of the transactions.
2. Prepare the adjusting entries you would make at December 31, 2011, for each of these items.
3. What would be the total effect on the income statement and balance sheet if these entries were not recorded?