Thompson Company sublet a portion of its office space for ten years at an annual rental of $36,000,beginning on May 1.The tenant is required to pay one year's rent in advance,which Thompson recorded as a credit to Rental Income.Thompson reports on a calendar-year basis.The adjustment on December 31 of the first year should be
A) Rental Income .......................12,000
Unearned Rental Income ............12,000
B) Rental Income .......................24,000
Unearned Rental Income ............24,000
C) Unearned Rental Income ..............12,000
Rental Income ....................12,000
D) Unearned Rental Income ..............24,000
Rental Income ....................24,000

Question

Quizplus · Accepted Answer

The tenant paid one year's rent in advance, so Thompson has earned $12,000 of rental income for the first eight months of the lease. The remaining $24,000 of rent is unearned and should be recorded as a liability.

Thompson Company Sublet a Portion of Its Office Space for Ten