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.

Question

Quizplus · Accepted Answer

As of December 31, only two out of the five pre-paid months have been utilized (October and November), which means that the company still has $7,500 ($2,500 x 3 months) of unearned rent revenue. Therefore, the adjusting entry needed on December 31 is to debit the Unearned Rent account for $7,500, and credit the Rent Earned account for $7,500. This entry will recognize the portion of rent that was earned during the accounting period and adjust the accounts accordingly.

On October 1,Vista View Company Rented Warehouse Space to a Tenant