Manfretti Corporation received cash of $12,000 on August 1, 20X7 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 20X7 adjusting entry is

Question

Quizplus · Accepted Answer

The correct adjusting entry is to debit Rent Revenue and credit Unearned Rent for $7,000. This is because from August 1 to December 31, 20X7, 5 months have passed, leaving 7 months' worth of the rent (from the total 12 months) unearned as of December 31, 20X7. The $12,000 received in advance needs to be allocated proportionally to reflect the amount earned by year-end and the amount still unearned.

Manfretti Corporation Received Cash of $12,000 on August 1, 20X7