Question

The unearned rent account has a balance of $71,076. If $16,928 of the $71,076 is unearned at the end of the accounting period, the amount of the adjusting entry is

a.$71,076

b.$88,004

c.$54,148

d.$16,928

Answer 1

First, we need to understand unearned revenue

Revenue which is not yet earned but still received or Any amount which is received in advance in the business for providing goods or services to its customers is known as unearned revenue and such revenue is shown as current liabilities in the business as the amount is received in business but in return, no services are provided.

In this case, unearned rent is our unearned revenue

Let understand Accounting for unearned rent

When this rent amount received in advance

We will pass following journal entry

Accounts Debit Credit

Cash $71,076

Unearned rent account $71,076

(To record rent received in advance)

The above entry is to debit cash account and credit unearned account

An unearned rent account of $71,076 is shown in the balance sheet as current liabilities

When at the end of the accounting period, the Unearned rent account shows a balance of $16,928 out of $71,076 or $16,928 of the $71,076 is unearned which means that Now, $16,928 is our current liability and we have provided services.

$16,928 is a balance which is after providing services and $71,076 is balance before providing services

So, the difference of both is amount which is now earned or services provided

Services provided or the amount which is now earned = $71,076 - $16,928

=$54,148

As $54,148 is now earned so, we will pass adjusting entry to reduce our current liability

Accounts Debit Credit

Unearned rent account $54,148

Rent revenue account $54,148

(To record adjusting entry)

The above entry shows that we have reduced our current liabilities by $54,148 as this amount is now earned.

Where unearned rent account is debited and rent revenue account is credited

So, the amount of the adjusting entry is $54,148

Checking the given options

a.$71,076 is incorrect as this is our unearned rent account balance before providing services or we can say this is the amount which we received in advance.

b.$88,004 is wrongly calculated by adding both balances that is balance before providing services ($71,076) and balance after providing services ($16,928). So, this is incorrect

c.On the basis of the above explanation, $54,148 is the amount of the adjusting entry. So, this option is correct

d.$16,928 is our unearned rent account balance after providing services of $54,148. So, this option is incorrect