[BenB]

Wall Co. leased office premises to Fox, Inc., for a 5-year term beginning January 2, 20X1. Under the terms of the operating lease, rent for the first year is $8,000 and rent for Years 2 through 5 is $12,500 per annum. However, as an inducement to enter the lease, Wall granted Fox the first six months of the lease rent-free. In its December 31, 20X1, income statement, what amount should Wall report as rental income?

Rent for Year 1 $ 8,000 x 6/12 = $ 4,000

Rent for Years 2-5 $12,500 x 4 = 50,000

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Total for five years $54,000

=======

Rent for 1 year (amount to be

reported for 20X1) = $54,000 / 5

= $10,800

I’m reading this over and over and I find it maddening that first years rent is 4,000. An inducement would part of the “terms of the operating lease” and thus in my opinion it’s seems very reasonable to consider that 8,000 is the actual rent for year 1.

FAR 7/11/16 - 87
BEC 9/9/16
REG TBD
AUD TBD

[Mehow]

Yeah I got that question wrong the first time also because I thought it was $8,000 but if you think about they first month could've been a reduced rate and to add to it they did half off. Don't sweat that question, some wording will stump you.

FAR = 86 4/22/16
BEC = 80 6/01/16
REG = 07/26/16
AUD = ?

[victoriaperezs]

Hi, I also did the same thing as you, however, after re-reading it, it made sense to me. They give you the whole year rent but then tell you that you will get 6 months free. Think about it, if your landlord tells you your annual rent is 8000 but you could live 6 months for free, then you would only have to pay 4000. But yeah, the wording can be confusing sometimes.

[CPA_Chik]

I agree. I've noticed that it is my biggest issue with FAR questions – I don't read too much between the lines or skip over some words. I just re-read questions twice now to make sure I catch everything.

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REG - 75
FAR - 66; 73; 75
AUD - 68; 76
BEC - 79

REG - 75!!!
FAR - 66; 73 (FML!!!)
AUD - 09/16
BEC - TBD

[Anonymous]

Perhaps the differentiating factor is rental income versus expense. The landlord must abide by the rule of conservatism while the tenant straight-lines rent expense. Interesting question.

[Author]

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