Ultra 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. Ultra Realty should make the following adjusting entry on July 31:

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Unearned Rental Revenue and credit Rental 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 $3,500 of the unearned revenue has now been earned.

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