[Nivek]

Becker Question –

On August 1, Metro, Inc. leased a luxury apartment unit to Klum. The parties signed a 1-year lease beginning September 1, for a $1,000 monthly rent payable on the first day of the month. At the August 1 signing date, Metro collected $540 as a nonrefundable fee for allowing Klum to sign a 1-year lease (the normal lease term is three years) and $1,000 rent for September.

a. $4,180
b. $5,180
c. $4,000 The answer was A. $4,000 in rent + 3 months portion of non-refundable fee, $180
d. $4,540

Is this correct? Why is the nonrefundable fee not recognized immediately? All services were performed to recognize the revenue in the way that nothing else has to be done to secure that revenue and collectibity is certain since it already happened. If the lease agreement was cancelled immediately the leasee could not get the money back

Just want to make sure this is definitely the way to handle nonrefundable pre-payments and stuff like that, Thanks

 

 

Officially done.

[Anonymous]

I think Nonrefundable fee as the “price” of the leasing agreement.

“Why is the nonrefundable fee not recognized immediately?”

-If agreement is carried out, the agreement is not fulfilled yet–“All services were not performed yet”. Since the matching principle, the the non-refundable fee is capitalized and amortized over the leasing agreement.

-If the agreement was cancelled, the agreement of the lessor part is done. “All services were performed” and recognized, so debit the unearned revenue and credit gain on agreement.

That's how I think, not necessary right.

[ssaetern]

How come the $540 is allocated for 4 months instead of 5 months? The $540 was collected on August. So that leaves 5 months from August to December.

AUD - 78
BEC - 78
FAR - 85
REG - 83

So glad to have my life back!

[Stilgoin]

It says the lease started in September.

Stilgoin, CPA

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[Author]

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