(Solved Homework): Palace Apartments, an accrual-method taxpayer, owns and rents apartment buildings in San Francis…

Palace Apartments, an accrual-method taxpayer, owns and rents apartment buildings in San Francisco. (Note: answer is not $30,000)

Palace Apartments, an accrual-method taxpayer, owns and rents apartment buildings in San Francisco. On June 15, 2016, Mr. King, an individual, agreed to pay $5,000 per month for a two-year lease on a studio apartment starting July 1,2016. On June 30, 2016, Mr. King prepaid Palace Apartments $120,000, which was the entire rent for the two-year lease. How much must Palace Apartments include in income for 2016?

Palace Apartments, an accrual-method taxpayer, owns and rents apartment buildings in San Francisco. On June 15, 2016, Mr. King, an individual, agreed to pay $5,000 per month for a two-year lease on a studio apartment starting July 1,2016. On June 30, 2016, Mr. King prepaid Palace Apartments $120,000, which was the entire rent for the two-year lease. How much must Palace Apartments include in income for 2016?

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Answer: $120,000.

Explanation:

All rent received in advance should be included in the income of the year in which it was received, regardless of the method of accounting used and the period for which the advance rent is received. Hence, the entire amount of $120,000 should be included in the income for 2016.

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