Fragmental Co.leased a portion of its store to another company for eight months beginning on October 1,at a monthly rate of $800.Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue.Assuming adjusting entries are only made at year-end,the adjusting entry made by Fragmental Co.on December 31 would be:

A) A debit to Rent Revenue and a credit to Cash for $2,400.
B) A debit to Rent Revenue and a credit to Unearned Rent for $2,400.
C) A debit to Cash and a credit to Rent Revenue for $6,400.
D) A debit to Unearned Rent and a credit to Rent Revenue for $2,400.
E) A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

Question

Mikaela Clemson · Accepted Answer

Final Answer : D, Explanation :  The adjusting entry on December 31 would involve recognizing the revenue that has been earned for the portion of the lease agreement that has elapsed since October 1. Therefore, Fragmental Co. would debit Unearned Rent for $2,400 (8 months x $800/month x 3/12) and credit Rent Revenue for the same amount. The cash received on October 1 is not affected by this adjusting entry.

Definitions

Learning Objectives

Learning Objectives

Related questions