Bonita Realty Management Co. received a check for $32,400 on August 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $32,400. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be a
$13,500 debit to Unearned Rent Revenue and a $13,500 credit to Rent Revenue.
Solution:
The year-end adjusting entry reduces the liability (i. e., Unearned Revenue) and increases Revenue for the amount of revenue earned during this accounting period.
Revenue earned Aug. through Dec. = 32,400 x 5/12 = 13,500
Chapter 4, Learning objective 4 T/F
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