On February 1, 2014, Apollo Company received $24,000 in advance for a three-year rental of land, and credited Rent Revenue. The correct December 31, 2014 adjusting entry would be

Question

Quizplus · Accepted Answer

When Apollo Company received $24,000 in advance for a three-year rental of land, and credited Rent Revenue, it created an unearned rent liability. 
Since only one year has elapsed by December 31, 2014, the amount of revenue recognized should be only for the first year. This would be calculated as $24,000/3 = $8,000 of annual rent.

To adjust the accounts, we need to reduce the Rent Revenue account by $8,000 (one year's rent) and increase the Unearned Rent account by the same amount. 
Therefore, the correct adjusting entry would be Rent Revenue $16,667 (2 years x $8,000 + $667) and Unearned Rent $16,667 (2 years x $8,000 + $667).

Choice B is the correct answer because it correctly reflects the required adjusting entry.

On February 1, 2014, Apollo Company Received $24,000 in Advance