[Anonymous]

On July 1, Year 1, Gee, Inc. leased a delivery truck from Marr Corp. under a 3-year operating lease. Total rent for the term of the lease will be $36,000, payable as follows:

12 months at $500 = $6,000

12 months at $750 = $9000

12 months at $1,1750 = $21,000

All pmts were made when due. In Marr’s June 30, year 3, B/S, the accrued rent receivable should be reported as:

A. $0

B. $9,000

C. $12,000

D. $21,000

Correct answer is $9,000 and I understand why that is. However, if the question asked was “What’s the rent receivable at June 30, Year 3,” then would the answer have been $21,000?

Since this question asks ACCRUED rent receivable, $9000 is correct. BUT total rent receivable should be $21,000, correct?

Just curious. Thanks:)

[jenuno01]

What an awkward question (not your fault)…it doesn't even say when the payments are made? My answer would be 21,000 (assuming they haven't received the last payment). When they say “accrued” it means the same thing… we're assuming they use accrual accounting…. I guess what I am trying to say is the fact that they used the word “accrued” does not make a difference. I may be way off though? Sorry for not being helpful lol

Class of 2012

[momto5]

The reason the $9000 is accrued is because it is rent that has been earned but not yet paid for (because the rent accrues at $1000 per month and they were paying less the first year). At this point, there is $21,000 left to be paid on the contract, but only $9000 is accrued because we don't book future rent, only earned. At least that's the way I am looking at it.

FAR – 4/27/12

FAR - 92 (4/27/12)
AUD - 96 (7/17/12)
BEC - 92 (8/30/12)
REG - 91 (11/12/12)

[momto5]

Oh, and I would think an “accrued” rent receivable would be the same as just a rent receivable. The fact that you are booking a receivable means you are accruing for something you do not yet have but have earned. The $21,000 would not be a receivable yet as rental income is not booked as a total receivable (like a purchase or note would be), it is booked monthly as earned. Does that make sense?

FAR - 92 (4/27/12)
AUD - 96 (7/17/12)
BEC - 92 (8/30/12)
REG - 91 (11/12/12)

[jenuno01]

@momto5 right. But wouldn't the initial JE be a debit to rent receivable for the full 36,000?

Class of 2012

[Anonymous]

@momto5: That totally makes sense!! I was thinking of it as “accts receivable,” but even then…it wouldn't be a receivable b/c it hasn't been earned yet! I understand $9000 being as accrued receivable b/c it has been EARNED. Thank you!!

@jenuno01: Appreciate your response! My thoughts were similar to yours, but the answer makes sense since it asks for accrued amount.

Ugh, FAR, you make me crazy;)

[momto5]

@ jenuno01 – I don't think the initial JE would be a rent receivable for the entire $36,000 on an operating lease. I am thinking that a capital lease would be something like that (although it would be the Present Value of the payments), but an operating lease is just like taking in rent payments, as earned.

FAR - 92 (4/27/12)
AUD - 96 (7/17/12)
BEC - 92 (8/30/12)
REG - 91 (11/12/12)

[Anonymous]

Would it be correct to assume the following in arriving at the answer?

Entry to record Year 1:

Db Rent receivable $6,000

Db Cash $6,000

Cr Revenue $12,000

Entry to record Year 2:

Db Rent receivable $3,000

Db Cash $9,000

Cr Revenue $12,000

Using T accounts above gives you the rent receivable amount of $9,000.

Also, if you then project out Year 3:

Db Cash $21,000

Cr Revenue $12,000

Cr Rent receivable $9,000

I think…

[Author]

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