Question 126

Rental income will be reflected on the closing statement as a debit to the seller of $300 and a credit to the buyer of $300.

Since the sale of the duplex closes on the 15th of the month, the rental income needs to be prorated. The monthly rent is $600, thus for half a month (the 1st to the 15th), the seller is credited for the rental income they earned, while the buyer is debited for the income they will receive from the 15th onward.

A) debit to the seller of $300 and a credit to the buyer of $300.

This option is correct because it accurately reflects the proration of the rental income. The seller is owed $300 for the first half of the month (1st to 15th), which is a debit, and the buyer, who will receive the full rent amount for the second half of the month (15th to the end), is credited $300.

B) credit to the seller of $300 and a debit to the buyer of $300.

This option is incorrect because it reverses the roles of the seller and buyer in the transaction. The seller should receive a debit for the amount due for the period they owned the property, while the buyer should be credited for the income they will earn from that point forward.

C) credit of $600 to the seller only.

This option is incorrect as it does not account for the proration of rent. The seller is not entitled to the full $600 since they only owned the property for half the month. They can only receive $300 for the period they held the property.

D) credit of $600 to the buyer only.

This option is also incorrect because it fails to recognize that the seller should be credited for the rent they earned during the first half of the month. The buyer will not receive the entire $600 since they only take possession from the 15th onward.

Conclusion

The correct answer, which indicates a debit to the seller and a credit to the buyer, properly reflects the proration of rental income based on the closing date. Other options fail to appropriately allocate the rental income according to ownership duration, thus making them incorrect.