[futureCPA]

Main, a pharmaceutical company, leased office space from Ash. Main took possession and began to use the building on July 1, Year 1. Rent was due the first day of each month. Monthly lease payments escalated over the 5-year period of the lease as follows:

Period Lease payment

July 1, Year 1 – September 30, Year 1 $0 – rent abatement during move-in, construction

October 1, Year 1 – June 30, Year 2 17,500

July 1, Year 2 – June 30, Year 3 19,000

July 1, Year 3 – June 30, Year 4 20,500

July 1, Year 4 – June 30, Year 5 23,000

July 1, Year 5 – June 30, Year 6 24,500

What amount would Main show as deferred rent expense at December 31, Year 4?

a. $50,658

b. $68,575

c. $71,550 ANSWER

d. $52,580

I solved this problem as follows: add all of the lease payments to get to $104,500–>$104,500 / 60 months of lease life = $1,742–>number of months from beginning until Dec 31, year 4 (42) * $1,742 = $73,164.

I don’t understand Becker’s answer explanation of this problem. Any help is greatly appreciated.

REG - 70, 72, retake at end of Nov.
BEC - PASS
FAR - 10/20/2015
AUD - PASS