QRT Co.received $1,560 advance from Zync Inc.as rent for the use of a building owned by QRT Co.How does this transaction affect QRT's accounts if QRT recognizes a liability on receipt of the rent?
A) Cash is increased, and sales revenue is increased.
B) Cash is increased, and rent income is decreased.
C) Cash is increased, and unearned rent is increased.
D) Cash is increased, and prepaid rent is increased.

Question

Quizplus · Accepted Answer

If QRT recognizes a liability on receipt of the rent, it means that they have received payment in advance and have an obligation to provide the agreed-upon service (use of the building) in the future. This creates an unearned rent liability, which is increased by the $1,560 advance payment received. Therefore, cash is increased, and unearned rent is increased. Option A is incorrect because sales revenue is not affected by rental income. Option B is incorrect because rent income is not decreased, but rather deferred until the rental service is provided. Option D is incorrect because prepaid rent is not applicable in this scenario.

QRT CoReceived $1,560 Advance from Zync Inc