Question

Leonard's Lofts rents townhouses to tenants. When a tenant moves in, they are required to pay the first month's rent of $525 and prepay the last month's rent of $525. In addition, the tenant must pay a refundable security deposit of $600. Leonard's Lofts uses the accrual method for tax reporting. Upon receipt of the $1650, Leonard's initial lofts must recognize ___________ in rental income.

Answer 1

The answer is: $1,050 in rental income

Step-by-step explanation:

Since Leonard's Lofts use the accrual method of recording revenue, they must record both the first month's rent and the last month's rent as revenue. This method of recording accounting transactions considers revenue when it's earned and expenses when they occur.

The $600 left in security deposit are not income since they are refundable.