Thompson Company Sublet a Portion of Its Office Space for Ten

question 13

Multiple Choice

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

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Definitions:

Direct Method

A way to prepare the cash flow statement, where operating cash receipts and payments are listed directly to calculate net cash from operating activities.

Cash Payments

Financial transactions that involve the transfer of cash from one entity to another.

Income Taxes Payable

The amount of income taxes a company owes to governmental entities but has not yet paid.

Operating Activities

Operating Activities involve the cash flows that are generated from the primary business activities of a company, such as selling products or services.