On September 1, 2017, Black Corporation received $36,000 cash from a tenant for one year's rent in advance, and recorded the transaction with a credit to Rent Revenue.The December 31, 2017 required adjusting entry in connection with this would be

Question

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When Black Corporation received $36,000 cash from the tenant for one year's rent in advance, it recorded the transaction with a credit to Rent Revenue. However, at the end of the year on December 31, 2017, the company needs to adjust the account to reflect the portion of rent that has not yet been earned.

Since the rent was for one year, only four months of rent have been earned by the end of the year (August through December). Thus, the adjusting entry needed would be to debit Rent Revenue (for the portion of rent earned) and credit Unearned Rent (for the portion of rent not yet earned).

The total amount of rent collected in advance was $36,000, which means that $24,000 of rent was not yet earned. Therefore, the adjusting entry would be to debit Rent Revenue and credit Unearned Rent for $24,000.

Option B is the correct answer.

On September 1, 2017, Black Corporation Received $36,000 Cash from a Tenant