PRC-1 · Chapter 4 · Question 79 of 100
A landlord received Rs. 120,000 on July 1, representing one year's rent in advance. This entire amount was initially credited to the 'Unearned Rent' liability account. What adjusting entry is required on December 31?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Unearned Rent Rs. 60,000; Credit Rent Income Rs. 60,000
Explanation
By December 31, six months of the rent has been earned (120,000 x 6/12 = 60,000). The adjusting entry must reduce the liability (Debit Unearned Rent) and recognize the income (Credit Rent Income).
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