Question

Collected $1,200 rent for the period December 1 of the current year to April 1 of next year, which was credited to

Unearned Rent Revenue on December 1.

Transaction BALANCE SHEET INCOME STATEMENT
Assets Liabilities Stockholders' Equity Revenues Expenses Net Income
a. NE -300 +300 +300 NE +300
b. -3200 NE -3200 NE +3200 -3200
c. -1250 NE -1250 NE +1250 -1250

Answer 1

The correct answer is option c. When rent is collected in advance, it is initially recorded as Unearned Rent Revenue, which is a liability account.

Step-by-step explanation:

The correct answer is option c.

When rent is collected in advance, it is initially recorded as Unearned Rent Revenue, which is a liability account. This is because the rent has been collected but has not yet been earned. On December 1, when the $1,200 rent was collected for the period December 1 of the current year to April 1 of next year, it was credited to Unearned Rent Revenue. This increases the liability of Unearned Rent Revenue by $1,200. The entry to record this would be:

Debit: Cash $1,200

Credit: Unearned Rent Revenue $1,200

Option c shows this correctly, with a debit of $-1,250 to cash and a credit of $-1,250 to Unearned Rent Revenue.