Question

Bonita Real Estate received a check for $28440 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $28440. Financial statements will be prepared on July 31. Bonita Real Estate should make the following adjusting entry on July 31:
A. Debit Cash, $28440; Credit Rent Revenue, $28440.
B. Debit Rent Revenue, $4740; Credit Unearned Rent Revenue, $4740.
C. Debit Unearned Rent Revenue, $4740; Credit Rent Revenue, $4740.
D. Debit Unearned Rent Revenue, $28440; Credit Rent Revenue, $28440.

Answer 1

Answer:

C. Debit Unearned Rent Revenue, $4740; Credit Rent Revenue, $4740.

Explanation:

When money is collected in advance for service yet to be rendered, we credit unearned revenue and debit cash. As the service becomes rendered, we debit unearned revenue with the amount earned and credit revenue.

Since the money was received on 1 July and the Financial statements will be prepared on July 31, by the date of the preparation, the company has earned 1 month rent. This rent is equivalent to

= $28440/6

= $4760

Hence the adjusting entry on July 31 will be

C. Debit Unearned Rent Revenue, $4740; Credit Rent Revenue, $4740.