Question

On january 1, 2024, perez properties leased a warehouse to jensen distributors. the operating lease provided for a nonrefundable bonus paid by jensen. perez should recognize the bonus in earnings:

a) At the beginning of the lease.
b) When the bonus is received.
c) Over the life of the lease.
d) At the expiration of the lease.

Answer 1

Perez Properties should recognize the bonus in earnings over the life of the lease.

Step-by-step explanation:

According to accounting standards, the nonrefundable bonus received by Perez Properties should be recognized as revenue over the life of the lease.

This is because the bonus represents an additional consideration for granting the lease, and it is directly related to the use ofe asset over the lease term.

Perez Properties should recognize a portion of the bonus as revenue each period, based on the lease term and the pattern of benefit derived by Jensen Distributors.

In accordance with accounting principles, Perez Properties should recognize the lease bonus in earnings over the life of the lease (option c). This method of recognition aligns with the matching principle, which states that expenses should be matched with the revenues they help to generate. In the case of a nonrefundable lease bonus, the payment is considered an advance of rental income, thus it should be recognized as revenue over the period in which the leased asset is being used.