Question

Vaughn Manufacturing received cash of $63600 on August 1, 2017 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 2017 adjusting entry is:

A. debit Cash and credit Unearned Rent Revenue, $37100.
B. debit Unearned Rent Revenue and credit Rent Revenue, $26500.
C. debit Rent Revenue and credit Unearned Rent Revenue, $26500.
D. debit Rent Revenue and credit Unearned Rent Revenue, $37100.

Answer 1

C. debit Rent Revenue and credit Unearned Rent Revenue, $26500.

Step-by-step explanation:

The adjusting entry is shown below:

Rent revenue

To Unearned rent revenue

(Being the unearned rent revenue is recorded)

For recording this we debited the rent revenue as it reduced the sales and credited the unearned rent revenue as it increased the liability

Since the cash is received on August 1 and we need to record the adjusting entry on December 31,2017 so we considered the 5 months instead of taking 12 months i.e

= $63,600 × 5 months ÷ 12 months

= $26,500