Journal Entries for Contingent Rent
On January 1, Owner Company signed a 1 year rental for a total of $480,000, with monthly payments of $40,000 due at the end of each month. In addition, the renter must pay contingent rent of 2% of all sales in excess of $50 million annually. The contingent rent is paid in one payment on December 31. On January 31, Owner Company received the first rental payment. At that time, sales for the renter had reached $10 million. On May 31, Owner Company received the regular monthly rental payment; by the end of May, the renter had reached a sales level of $55 million. On December 31, Owner received the final monthly rental payment as well as the contingent rental payment. The renter’s sales for the year totaled $80 million, of which $12 million occurred in December. Make the journal entries necessary on the books of Owner Company on (1) January 31, (2) May 31, and (3) December 31.