Perez Corporation received cash of $12,000 on August 1, 2010 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue.The December 31, 2010 adjusting entry is

Question

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Since Perez Corporation received cash for one year's rent in advance on August 1, 2010 and recorded the transaction with a credit to Rent Revenue, the amount received needs to be adjusted at the end of the year to reflect the portion of rent that hasn't been earned yet. The adjusting entry on December 31, 2010, therefore, should be a debit to Rent Revenue and a credit to Unearned Rent.

To find the amount of rent that hasn't been earned yet, we first need to determine how much rent has been earned from August 1, 2010, to December 31, 2010. Since the rental period is for one year, the total amount of rent earned during this 5-month period is (5/12) x $12,000 = $5,000.

Therefore, the adjusting entry should be a debit to Rent Revenue for $5,000 and a credit to Unearned Rent for $5,000, making Choice B the correct answer.

Perez Corporation Received Cash of $12,000 on August 1, 2010