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 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 Deferred Revenue, $3,500; credit Rent Revenue, $3,500.
B)debit Rent Revenue, $3,500; credit Deferred Revenue, $3,500.
C)debit Deferred Revenue, $21,000; credit Rent Revenue, $21,000.
D)debit Cash, $3,500; credit Rent Revenue, $3,500.

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Deferred Revenue (or Unearned Revenue) and credit Rent Revenue for $3,500. This is because $21,000 represents 6 months of rent, so one month's rent is $3,500 ($21,000 / 6 months). By July 31, one month has passed, so they need to recognize one month of rent revenue.

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