Leyland Realty Company received a check for $18000 on July 1 which represents a 6-month advance payment of rent on a building it rents to a client.Unearned Rent Revenue was increased for the full $18000.Financial statements will be prepared on July 31.Leyland Realty should make the following adjustment on July 31:

Question

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The adjustment required on July 31 is to recognize the revenue that has been earned during the month of July. Since the client paid for 6 months in advance, only one month's rent has been earned in July. Therefore, Unearned Rent Revenue should be decreased by $3000 (1/6th of the advance payment), and Rent Revenue should be increased by the same amount. Option A correctly reflects this adjustment. Option B is incorrect because it suggests increasing Unearned Rent Revenue, which is incorrect since the rent has already been earned. Option C is also incorrect because it suggests decreasing Unearned Rent Revenue by the full $18000, which is incorrect since only one month's rent has been earned. Option D is incorrect because it suggests recognizing the full $18000 as Rent Revenue, which is incorrect since only one month's rent has been earned.

Leyland Realty Company Received a Check for $18000 on July