Action Real Estate received a check for $18,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $18,000. Financial statements will be prepared on July 31. Action Real Estate should make the following adjusting entry on July 31:
A) Debit Unearned Rent, $3,000; Credit Rental Revenue, $3,000.
B) Debit Rental Revenue, $3,000; Credit Unearned Rent, $3,000.
C) Debit Unearned Rent, $18,000; Credit Rental Revenue, $18,000.
D) Debit Cash, $18,000; Credit Rental Revenue, $18,000.

Question

Quizplus · Accepted Answer

The adjusting entry recognizes one month's worth of rent as earned revenue. Since the rent is for 6 months, $18,000 / 6 = $3,000 is earned in July. Therefore, Unearned Rent is debited and Rental Revenue is credited for $3,000.

Action Real Estate Received a Check for $18,000 on July