211k views
2 votes
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:

a. Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000.
b. Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000.
c. Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000.
d. Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.

1 Answer

5 votes

Answer:

The answer is:

Dr Unearned rental revenue $15,000

Cr Rental Revenue $15,000

Step-by-step explanation:

According to the revenue recognition principle, Videobusters should only recognize revenue when it has substantially completed the earnings process. So the $20,000 it received from selling rental coupons should be credited to Unearned rental revenue. But after $15,000 worth of coupons were actually used to rent videos, then they should change $15,000 to earned revenue. They should do this by debiting Unearned rental revenue and crediting rental revenue.

User Manav Sharma
by
9.1k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.