Question

Waterway Industries received cash of $35400 on September 1, 2020 for one year’s rent in advance and recorded the transaction with a credit to Unearned Rent Revenue. The December 31, 2020 adjusting entry is:_____________

a) debit Cash and credit Unearned Rent Revenue, $23600.
b) debit Unearned Rent Revenue and credit Rent Revenue, $11800.
c) debit Rent Revenue and credit Unearned Rent Revenue, $11800.
d) debit Rent Revenue and credit Unearned Rent Revenue, $23600.

Answer 1

Unearned rent revenue 11800 Dr

Rent Revenue 11800 Cr

Option b is the correct answer.

Step-by-step explanation:

Under the accrual or matching principle, we are required to match the revenues with expenses and record them in the period to which they relate to. Thus, the rent revenue that relates to the period from September to December 31, 2020 should be recorded as rent revenue in that period. So, the adjusting entry will be as made above.

The rent revenue for 4 months is = 35400 * 4/12 = 11800

So, we record 11800 as rent revenue for the year at 31 December and debit the account of unearned rent by this amount.