On October 1, Haslip Company rented warehouse space to a tenant for $2,500 per month. The tenant paid five months' rent in advance on that date. The payment was recorded to the Unearned Rent account. The company's annual accounting period ends on December 31. The adjusting entry needed on December 31 is:
A) Debit Rent Receivable, $12,500; credit Rent Earned, $12,500.
B) Debit Rent Receivable, $7,500; credit Rent Earned, $7,500.
C) Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.
D) Debit Unearned Rent, $5,000; credit Rent Earned, $5,000.
E) Debit Unearned Rent, $12,500; credit Rent Earned, $12,500.

Question

Quizplus · Accepted Answer

The adjusting entry needed on December 31 is to recognize the portion of rent that has been earned, which is $7,500 ($2,500 per month x 3 months). This means that the Unearned Rent account should be debited for $7,500 to reduce the balance, and the Rent Earned account should be credited for $7,500 to recognize the revenue. Therefore, option C is the correct choice. Option A is incorrect because Rent Receivable would only be used if the tenant had not yet paid, which is not the case here since they paid in advance. Options B, D, and E are incorrect because they do not properly recognize the portion of rent that has been earned.

On October 1, Haslip Company Rented Warehouse Space to a Tenant