Question

Leonard's Lofts rents townhouses to tenants. When a tenant moves in, they are required to pay the first month's rent of $525 and prepay the last month's rent of $525. In addition, the tenant must pay a refundable security deposit of $600. Leonard's Lofts uses the accrual method for tax reporting. Upon receipt of the $1,650, Leonard's initial Lofts must recognize $ ___________ in rental income.

Answer 1

The answer is: Leonard Loft's should recognize $1,050 as income

Step-by-step explanation:

The accrual method of accounting states that revenue should be recognized in the periods in when they occur rather than when they are paid or collected.

In Leonard's case they should recognize the rent of two months = $1,050 but not the $600 paid as security deposit since it is refundable.