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On January 1, Year 1, Glen Co. leased a building to Dix Corp. for a ten-year term at an annual rental of $50,000. At inception of the lease, Glen received $200,000 covering the first two years’ rent of $100,000 and a security deposit of $100,000. This deposit will not be returned to Dix upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $200,000 should be shown as a current and long-term liability, respectively, in Glen’s December 31, Year 1 balance sheet?
Choice “c” is correct. $50,000 current; $100,000 long-term.
Rule: Operating lease payments to a lessor that should be deferred include security deposits, prepaid rent, and the unamortized portion of non-refundable payments to the lessor for leasehold modifications.
Does anyone know why the other $50,000 for year 2 is not recognized as either current or long term liability? Of the $200,000, only $150,000 is reflected on the Balance Sheet.
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