[k1zuna]

Becker Question –

Tara Co. owns an office building and leases the offices under a variety of rental agreements involving rent paid in advance
monthly or annually. Not all tenants make timely payments of their rent. Tara’s balance sheets contained the following data:
……………………………..year 1…………………year 2
Rentals receivable……….9600………………….12400
Unearned rentals………..32000…………………24000

During Year 2, Tara received $80,000 cash from tenants. What amount of rental revenue should Tara record for Year 2?

a. $90,800
b. $85,200
c. $74,800
d. $69,200

===================================

The answer explanation uses a formula of: rental receivable – unearned rentals = unearned rentals
How does this work?

I’m also quite bad in Chapter 2’s basic concepts such as cash to accrual, prepaids/deferrals, and types of questions like the one above.
Is there a website or another book where I can sharpen my skills in these areas?

Many thanks.

 

 

FAR - Passed
AUD - Passed
BEC - Passed
REG - 8/22/2013

[musicamor]

The answer is A, $90,800. You derive this by applying the BASE formula:

Beginning balance: $9,600

Add: rental income (plug): $82,800

Subtract: cash receipts: ($80,000)

Ending balance: $12,400

I got the $82,800 by “backing into” the number. We were given the beginning balance, we know what the ending balance must be, and we're provided with cash receipts; based on that, you can do simple math to figure out what rental income must be in order to come to an ending balance of $12,400.

The additional piece is including the change in unearned income in the amount. Based on the above, I have $82,800 of rental income to recognized, plus $8,000 decrease in unearned rentals ($32,000 – $24,000). I add this because my balance between years 1 and 2 DECREASED; which suggests I earned rental revenue.

Hope this helps.

Texas CPA - licensed in 2012!!!

[Author]

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