Question

REM Real Estate received a check for $27,000 on July 1 which represents a 6 month

advance payment of rent on a building it rents to a client. Unearned Rent Revenue was
credited for the full $27,000. Financial statements will be prepared on July 31. REM Real
Estate should make the following adjusting entry on July 31:

a. Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500.
b. Debit Rent Revenue, $4,500; Credit Unearned Rent Revenue, $4,500.
c. Debit Unearned Rent Revenue, $27,000; Credit Rent Revenue, $24,000.
d. Debit Cash, $27,000; Credit Rent Revenue, $27,000.

Answer 1

a. Debit Unearned Rent Revenue, $4,500; Credit Rent Revenue, $4,500

Step-by-step explanation:

When the company receives the $27,000 check for six months of advance rent, it records the unearned revenue in a liability account named Unearned Rent Revenue. The resulting journal entry is:

(Dr) Cash, $27,000

(Cr) Unearned Rent Revenue, $27,000

With the passing of each month, the company earns one-sixth (1/6) of the unearned rent revenue (or $4,500), essentially reclassifying the revenue from unearned to earned. Therefore, after one month, the resulting journal entry is:

(Dr) Unearned Rent Revenue, $4,500

(Cr) Rent Revenue, $4,500