Question

On December 1, 2018, Shamrock Company received $9,600 from Destiny, Inc. for rent of an office owned by Shamrock Company. The payment covers the period from December 1, 2018 through February 28, 2019. Shamrock Company recorded this as Deferred Rent Revenue when it was received on December 1. The adjusting entry on December 31 would include a:
a. debit to Rent Revenue of $4,800.
b. credit to Rent Revenue of $3,200.
c. debit to Deferred Rent Revenue of $4,800.
d. credit to Deferred Rent Revenue of $3,200.

Answer 1

Answer:

b. credit to Rent Revenue of $3,200

Explanation:

Cash collected in advance results in the the creation of an asset and a liability. Hence a debit to cash account and a credit to deferred revenue. When the revenue is earned, it is recognized as a credit to revenue and a debit to deferred revenue with the amount earned.

Amount earned as at December 31

=  1/3 × $9,600

= $3,200

Entries required

Debit Deferred Rent revenue   $3,200

Credit Rent Revenue                 $3,200

Being entries to recognize revenue earned as at December 31