On July 1 2014 the Indigo Ltd rented out part of its property and collected $9000 in advance for a nine-month period. The receipt was credited to a liability account. At 31 December 2014, Indigo Ltd's year-end, which of the following adjusting journal entries should be made?
A) DR Cash $6000; CR Rent income $6000
B) DR Rent income $3000; CR Unearned rent income $3000
C) DR Unearned rent income $6000; CR Rent income $6000
D) DR Rent receivable $6000; CR Rent income $6 000

Question

Quizplus · Accepted Answer

The $9,000 collected in advance for nine months of rent is initially recorded as a liability in the unearned rent income account. However, as time passes and the company earns the rent, the liability decreases, and rental income increases. Therefore, at the end of the year, an adjusting entry is needed to decrease the unearned rent income account by the amount of rent that has been earned during the period ($9,000/9 x 6 months = $6,000) and increase the rental income account by the same amount. This is represented by the journal entry DR Unearned rent income $6000; CR Rent income $6000.

On July 1 2014 the Indigo Ltd Rented Out Part