Videobusters,Inc.offered books of video rental coupons to its patrons at $40 per book.Each book contained a certain number of coupons for video rentals.During the current period 500 books were sold for $20,000,and this amount was credited to Unearned Rental Revenue.At the end of the period,it was determined that $15,000 worth of coupons had been used by customers to rent videos.The appropriate adjusting entry at the end of the period would be:

Question

Quizplus · Accepted Answer

The adjusting entry should recognize the revenue that has been earned during the period. Since $15,000 worth of coupons have been used, this means that $15,000 in revenue has been earned. Therefore, the appropriate journal entry would be to debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000. This would effectively recognize the revenue that has been earned and reduce the liability for unearned revenue.