Regal Real Estate,which maintains its accounts on the basis of a fiscal year ending June 30,began the management of an office building on June 15 for an agreed annual fee of $4,800.The first payment is due on July 15.The adjusting entry required at June 30 is:
A)A debit to Management Fees Receivable for $200 and a credit to a revenue account for $200.
B)A $200 debit to Unearned Management Fees and a $200 credit to Management Fees Earned.
C)A debit to Cash for $200 and a credit to Management Fees Earned.
D)A debit to Cash for $400 offset by a credit to a revenue account for $200 and a liability for $200.

Question

Quizplus · Accepted Answer

The correct answer is A because Regal Real Estate earned a portion of the annual fee by managing the office building from June 15 to June 30, which is 15 days out of the 365 days in a year. The fee for this period is calculated as ($4,800/365) * 15 = $200. Since the payment is due after June 30, the amount earned but not yet received should be recorded as a receivable, thus requiring a debit to Management Fees Receivable and a credit to a revenue account for $200.

Regal Real Estate,which Maintains Its Accounts on the Basis of a Fiscal