On October 1, Goodwell 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 Unearned Rent, $5,000; credit Rent Earned, $5,000.
C) Debit Rent Receivable, $7,500; credit Rent Earned, $7,500.
D) Debit Unearned Rent, $12,500; credit Rent Earned, $12,500.
E) Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.

Question

Quizplus · Accepted Answer

By December 31, three months of rent have been earned (October, November, December), totaling $7,500. The adjusting entry should recognize this earned rent by debiting Unearned Rent and crediting Rent Earned for $7,500.

On October 1, Goodwell Company Rented Warehouse Space to a Tenant