Farm Realty Company received a check for $30,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent was increased for the full $30,000. Financial statements will be prepared on July 31.
Farm Realty should make the following adjustment on July 31:

Question

Quizplus · Accepted Answer

The correct adjustment is to recognize the rent that has been earned during July, which is one month out of the six months prepaid. The $30,000 covers 6 months, so one month's rent is $30,000 / 6 = $5,000. Therefore, Unearned Rent should be decreased by $5,000, and Rental Revenue should be increased by $5,000 to reflect the earned portion of the prepaid rent.

Farm Realty Company Received a Check for $30,000 on July