Question

Murphy Company sublet a portion of its warehouse for five years at an annual rental of $24,000, beginning on May 1, 2010. The tenant, Sheri Charter, paid one year's rent in advance, which Murphy recorded as a credit to Unearned Rental Revenue. Murphy reports on a calendar-year basis.

The adjustment on December 31, 2010 for Murphy should be:

a. No entry

b. Unearned Rent Revenue 8,000
Rent Revenue 8,000

c. Rent Revenue 8,000
Unearned Rent Revenue 8,000

d. Unearned Rent Revenue 16,000
Revenue Revenue 16,000

Answer 1

Answer:

d. Unearned Rent Revenue 16,000

Revenue Revenue 16,000

Explanation:

The journal entry to record this given transaction is shown below:

Unearned rent revenue A/c Dr

       To Rent revenue

(Being the unearned rent revenue is recorded)

The computation is given below:

Since the annual rental is $24,000 that begins from May 1, 2010, but we have to adjust it to December 31, 2010, so it would take 8  months

So, The unearned rent revenue would be

= $24,000 × 8 months ÷ 12 months

= $16,000