JJJ Corporation owns a number of shopping centers used to produce rental income. In 2020, the...

JJJ Corporation owns a number of shopping centers used to produce rental income. In 2020, the corporation received an advanced rental payment of $20,000 from one of the tenants. The advance payment represented the payment of the rent for the year 2021.

A. If JJJ Corporation used the cash method of accounting, indicate the amount of income, if any, the corporation would need to report in 2020.

B. If JJJ Corporation used the accrual method of accounting, indicate the amount of income, if any, the corporation would need to report in 2020.

Expert Solution

Receiving an advanced rental payment is known as advance rent which is not related to the current period. But for the coming period. So, treatment of advance rent is done accordingly.

A. If JJJ Corporation used cash method of accounting- In this method only those transactions are recorded which is received or paid in cash only irrespective of the period. Thus, advance rent received under cash method of accounting is recorded in the period in which the rent is received, irrespective of the period to which payment relates. Therefore, $20,000 is shown in the year 2020.

B. If JJJ Corporation used accrual method of accounting- The accounting treatment is different in this method, according to arrual method only those transactions are recorded which is related to current period only. Thus, advance rent received is treated as liability and have to be adjusted shown in balance sheet as liability.

Therefore in the year 2020 Cash/ Bank Account will be debited by $20,000 because we receive rent and Rent received in advance account will be credited by $20,000.

In the year 2021, Rent received in Advance account is debited by $20,000 and Rent income is credited by $20,000.

ekkarill92 answered 1 year ago

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