ABC Co.leased a portion of its store to another company for eight months beginning on October 1,2014,at a monthly rate of $800.This other company paid the entire $6,400 cash on October 1,which ABC Co.recorded as unearned revenue.The journal entry made by ABC Co.at year-end on December 31,2014,would include a:
A)Debit to Rent Earned for $2,400.
B)Credit to Unearned Rent for $2,400.
C)Debit to Cash for $6,400.
D)Credit to Rent Earned for $2,400.
E)Debit to Unearned Rent for $4,000.

Question

Quizplus · Accepted Answer

At year-end on December 31, ABC Co. would need to recognize the portion of rent that has been earned. As the company leased a portion of its store for 8 months at a monthly rate of $800, the earned rent for the 3 months ending on December 31 would be $2,400 (3 months x $800/month). Therefore, the journal entry would include a credit to Unearned Rent for $2,400 (reducing the liability) and a debit to Rent Earned for $2,400 (recognizing the revenue). Option D is the only choice that reflects these entries. Option E is incorrect as it suggests that the entire $6,400 is still unearned, whereas a portion has already been earned by year-end. Option A and C do not reflect the recognition of revenue and liability related to the rent earned.

ABC Coleased a Portion of Its Store to Another Company for for Eight