On January 1, Hannah Company signed a 1-year rental for a total of $60,000, with quarterly payments of $15,000 due at the end of each quarter. In addition, the renter must pay contingent rent of 4% of all sales in excess of $1,000,000.The contingent rent is paid in one payment on December 31. On March 31, Hannah Company received the first rental payment. At that time, sales for the renter had reached $350,000.The same renter has used the building for the past five years, and in each of those years the renter reached the contingent rent threshold of $1,000,000 in sales. Accordingly, the accountant for Hannah Company recognized total rent revenue of $19,000 for the first quarter—$15,000 collected in cash and another $4,000 in estimated contingent rent. The contingent rent estimate was based on the excess of sales in the quarter over one quarter of the $1,000,000 threshold [($350,000 – $250,000) × 0.04]. Sales for the quarter ended June 30 were $300,000, and the accountant for Hannah Company followed the same procedure regarding the contingent rent. Sales in the third quarter were $340,000. However, in the third quarter the accountant for Hannah Company learned that contingent rentals should not be estimated, but instead should be recognized only after the threshold has been reached. The accounting was done correctly in the third quarter, and the appropriate entry was made to correct the mistakes made in the first and second quarters. Sales by the renter in the fourth quarter were $400,000.

Instructions:

Recreate the journal entries made by Hannah Company:

1. In the first quarter.

2. In the second quarter.

3. In the third quarter.

4. In the fourth quarter.

Your entries should include the incorrect entries made in the first and second quarter and the correcting entry made in the third quarter.