McCloud Realty received a cheque for $21,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client.Unearned Rental Revenue was credited for the full $21,000.Financial statements will be prepared on July 31.McCloud Realty should make the following adjusting entry on July 31:
A)debit Unearned Rental Revenue, $3,500; credit Rental Revenue, $3,500.
B)debit Rental Revenue, $3,500; credit Unearned Rental Revenue, $3,500.
C)debit Unearned Rental Revenue, $21,000; credit Rental Revenue, $21,000.
D)debit Cash, $3,500; credit Rental Revenue, $3,500.

Question

Quizplus · Accepted Answer

The adjusting entry should recognize one month's worth of the advance payment as earned revenue. Since the payment covers 6 months, $21,000 divided by 6 equals $3,500 per month. Therefore, debit Unearned Rental Revenue and credit Rental Revenue for $3,500.

McCloud Realty Received a Cheque for $21,000 on July 1