Question

Windsor, Inc. received a check for $15480 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was increased for the full $15480. Financial statements will be prepared on July 31. Windsor's should make the following adjustment on July 31:

a. debit Unearned Rent Revenue, $2,500; credit Rent Revenue, $2,500.
b. debit Rent Revenue, $2,500; credit Unearned Rent Revenue, $2,500.
c. debit Unearned Rent Revenue, $15,000; credit Rent Revenue, $15,000.
d. debit Cash, $15,000; credit Rent Revenue, $15,000.

Answer 1

a. debit Unearned Rent Revenue, $2,500; credit Rent Revenue, $2,500.

Amount shall be $2,580 for each debit and credit.

Step-by-step explanation:

As in the given instance,

the rent received relates to a period of 6 months.

Thus, monthly rent = $15,480/6 = $2,580

This means if books are closed on 31 July and rent is received on 1 July, then the rent will be recorded as income for one month amounting $2,580 out of the total $15,480

Now, for recording this, since at the time of receiving the amount is recorded as unearned income, rent of 1 month is earned and shall form part of income.

Entry a is correct but the amount shall be $2,580.