Lang leased a portion of its store to Pang for 12 months beginning on November 1, at a monthly rate of $400. Pang paid the entire $4,800 on November 1, which Langrecorded as unearned revenue. The journal entry made by Lang at year-end, December31, would include:
A)A debit to Rent Earned for $400.
B)A debit to Cash for $800.
C)A credit to Unearned Rent for $400.
D)A credit to Rent Earned for $800.
E)A debit to Unearned Rent for $4,800.

Question

Quizplus · Accepted Answer

The $4,800 received from Pang at the beginning of the lease was recorded as unearned revenue, meaning it has not yet been earned by Lang. Since the lease was only for 12 months, and only one month has passed (November), Lang has only earned $400 of the total $4,800 received. Therefore, the journal entry at year-end would include a credit to Unearned Rent for $4,400 (to reduce the unearned revenue account to only the portion that has not yet been earned), and a debit to Rent Earned for $400 (to record the amount that has been earned during the month of December). This total debit of $400 to Rent Earned is what makes option D the correct choice. None of the other choices accurately reflect the situation described.

Lang Leased a Portion of Its Store to Pang for 12