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.The collection 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.

Question

Quizplus · Accepted Answer

Since the tenant paid five months' rent in advance, the Unearned Rent account was credited for $12,500 (5 months x $2,500). As of December 31, two months of the rent had been earned (October and November), so the adjusting entry needed is to debit Unearned Rent for $7,500 (3 months x $2,500) and credit Rent Earned for the same amount. Therefore, the correct answer is C) Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.

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