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

Question

Quizplus · Accepted Answer

The adjusting entry should recognize the revenue earned for one month. Since the payment was for 6 months, $21,000 / 6 = $3,500 is earned in one month. Therefore, debit Unearned Revenue and credit Rent Revenue for $3,500.

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