PPW Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. This other company paid the entire $6,400 cash on October 1, which PPW Co. recorded as unearned revenue. The journal entry made by PPW Co. at year-end on December 31 would include:
A) A debit to Rent Earned for $2,400.
B) A credit to Unearned Rent for $2,400.
C) A debit to Cash for $6,400.
D) A credit to Rent Earned for $2,400.
E) A debit to Unearned Rent for $4,000.

Question

Quizplus · Accepted Answer

PPW Co. needs to recognize the earned portion of the rent for the three months (October, November, December) which is $800 x 3 = $2,400. Therefore, they will credit Rent Earned for $2,400.

PPW Co Leased a Portion of Its Store to Another Company