On September 1, 2020, Rudolph Corporation received $ 54,000 cash from a tenant for one year's rent in advance, and recorded the transaction with a credit to Rent Revenue. The December 31, 2020, required adjusting entry in connection with this would be

Question

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When Rudolph Corporation received $54,000 cash from the tenant for one year's rent in advance, it recorded the transaction with a credit to Rent Revenue. However, at the end of the year, only 4 months worth of rent revenue has been actually earned (since the year-end is on December 31), which is $54,000/12*4 = $18,000.

Therefore, an adjusting entry is required to recognize that $36,000 of the $54,000 cash received is still unearned because it corresponds to rent for the next 8 months. This means that the Rent Revenue account needs to be reduced and the Unearned Rent account needs to be increased by $36,000.

Hence, the adjusting entry would be to debit Rent Revenue and credit Unearned Rent, $36,000.

On September 1, 2020, Rudolph Corporation Received $ 54,000 Cash