Question

On September 1, Year 1, Company D received a $3,000 security deposit from the tenant on an office Company D had rented to a tenant for two years. This amount is expected to be returned to the tenant at lease end if no repairs are needed. The rental period started on September 1, Year 1. The rental agreement requires the tenant pay Company D $1,100 per month at the start of each month. Additionally, the lease agreement required the tenant to pay Company D at the start of the lease for the last month of the lease term. All payments occur as required.
Required:
$_________ Year 1 Rent Revenue
$_________ Any liabilities Company D might have related to this lease at Dec. 31, Year 1 [If
none, so state.]
$_________ Rent Receivable at Dec. 31, Year 1 [If none, so state]
Required:
$_________ Year 2 Rent Revenue
$_________ Any liabilities Company D might have related to this lease at Dec. 31, Year 2 [If
none, so state.]
$_________ Rent Receivable at Dec. 31, Year 2 [If none, so state.]
$_________ Cash received for rent on this office in Year 2

Answer 1

Given Data

Lease Period = 2 Years

Year 1 = Sep 1 To Dec 31  

Year 2 = Jan 1 To Dec 31

Financial Year = Jan to Dec

Security Deposit received on Sep 1 Year 1 Returnable in nature = $3000 (will stood as liability till the end of lease in boons of company D)

Advance rent for last month of lease on year 1 Sep 1 = $1100 (will stood as liability till first day of last lease month in the books of company D)

Year 1 Rent Revenue

Rent for Sep to Dec will be considered rent revenue for the year 1 so it will be of 4 months and revenue will be

= 4 X 1100 = S4400

Any Liability of company D as on Dec 31 Year 1

Liability of Security Deposit =$3000

Liability of lease last month rent = $1100

Total liability will be as on Dec 31 year 1 = $3000 + $1100 = $4100

Rent receivable as on Dec 31 Year 1

It will be nil, as the payment for rent services rendered till Dec 31 year 1 is received as on Dec 1 year 1. So no payment outstanding and not rent receivable exist.

Year 2 Rent Revenue

Year will be from Jan to Mach of 12 Month, So rent revenue will be of

12 X 1100 = $13200

Any Liability as on Dec 31 Year 2

It will be same as was on Dec 31 Year 1 For Security Deposit of $3000 and for last month of lease rent received in advance for $1100 so it will be $4100.

Rent receivable at Dec 31 year 2

Same as was at Dec 31 year 1 It will be nil, as the payment for rent services rendered till Dec 31 year 2 is received as on Dec 1 year 2. So no payment outstanding and not rent receivable exist.

Cash received for rent in year 2

Cash for only 12 month rent will be received in year 2 so it will be

12 X 1100 = $13200

So above is the solution to the problem based on revenue recognization.