[Whatdidyou]

Here is the question:

X corp, an accrual-basis taxpayer, reported rent receivable of $35,000 and $25,000 in its Year 2 and Year 1 Balance sheets, respectively. During Year 2, X received $50,000 in rent payments and $5,000 in nonrefundable rent deposits. In X’s Year 2 corporate income tax return, what amount should X include as rent revenue?

Solution: $65,000 (total cash received + increase in accrual account).

My confusion: I thought that when it came to rental activities, you recognize taxable income when you receive the cash. So the solution I chose was $55,000 (the $50,000 rental payments received + the nonrefundable deposit cash receipts). The way they answer the above question seems to be sort of a hybrid way to do it that does not seem right based on my understanding of the topic. Is it?

Thanks!

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Study Materials: Becker basic course

[gans555]

I think what you're thinking about is that rents received in advance are included in income whether on the cash or accrual basis of reporting. Here, they received cash of $55,000 and the increase in the account of $10,000. So they have received cash of 55,000 and since they are on the accrual basis, they report the rent receivables in income. If they were on the cash basis, they would only have income of $55,000. Hope this helps.

[forever4]

Because its accrual basis so you have to find out the actual rent which is 60k then add the 5k from nonrefundable deposit. 50k is the cash receive not the actual rent income earned!

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I'm DONE! OMG 8 months of hard work.

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[Author]

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