Asked by Dahmineek Taylor on Jun 19, 2024
Verified
On October 1,Vista View Company rented warehouse space to a tenant for $2,500 per month.The tenant paid five months' rent in advance on that date,with the lease beginning immediately.The cash receipt was credited to the Unearned Rent account.The company's annual accounting period ends on December 31.The adjusting entry needed on December 31 is:
A) Debit Rent Receivable,$12,500; credit Rent Earned,$12,500.
B) Debit Rent Receivable,$7,500; credit Rent Earned,$7,500.
C) Debit Unearned Rent,$7,500; credit Rent Earned,$7,500.
D) Debit Unearned Rent,$5,000; credit Rent Earned,$5,000.
E) Debit Unearned Rent,$12,500; credit Rent Earned,$12,500.
Unearned Rent
Income received before the period to which it applies, requiring deferred revenue recognition until the service (rental period) is provided.
Adjusting Entry
An adjusting entry is a journal entry made in accounting records at the end of an accounting period to allocate income and expenditures to the appropriate period.
- Become aware of and keep records for adjusting entries related to accrued expenses and revenues, examining their influence on financial statements.
Verified Answer
MM
Madalyn MettsJun 22, 2024
Final Answer :
C
Explanation :
The adjusting entry needed on December 31 is to recognize the portion of rent that has been earned. Since five months' rent has been paid in advance and the lease period began immediately on October 1, the lease period covers October, November, and December. Therefore, the portion of rent that has been earned as of December 31 is $2,500 x 3 = $7,500.
To adjust for this, we need to debit the Unearned Rent account (which currently has a credit balance because the cash receipt was credited to it) for $7,500 and credit the Rent Earned account for the same amount.
Therefore, the correct answer is C.
To adjust for this, we need to debit the Unearned Rent account (which currently has a credit balance because the cash receipt was credited to it) for $7,500 and credit the Rent Earned account for the same amount.
Therefore, the correct answer is C.
Learning Objectives
- Become aware of and keep records for adjusting entries related to accrued expenses and revenues, examining their influence on financial statements.