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sunnydelite
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Joined: 07 Jul 2010
Location: United States
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Posts: 109

Posted: 23 Oct 2010 at 16:26 \| IP Logged

Tara Co. owns an office building and leases the offices
under a variety of rental agreements involving rent paid
in advance monthly or annually. Not all tenants make
timely payments of their rent. Tara's balance sheets
contained the following data:

                      ear 1        Year 2
Rentals   receivable      $9600            ; $12,400
unearned rentals          $32000          ; $24,000

During Year 2, Tara received $80,000 cash from tenants,
what amount of rental revenue should Tara record for Year
2?

Choice "a" is correct. $90,800 rental revenue earned for
Year 2.

I do not understand the explanation from Becker, can
anyone help? thanks a lot!

1/2 CPA
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Joined: 16 Jun 2010
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Posts: 144

Posted: 23 Oct 2010 at 18:47 \| IP Logged

If the rent receivables increased during the year this means you earned rent but have not received the cash, this needs to be added to the 80,000, and if unearned rent decreased this means you are now recoginizing rent that was recorded as unearned, this also must be added to the 80,000 that has been recorded as rent revenue. This will give you the 90,800.

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