Problem 4-39 (LO. 2, 5) The Bluejay Apartments, a new development, is in the process of structuring its lease agreements. The company would like to set the damage deposits high enough that tenants will keep the apartments in good condition. The company is actually more concerned about damage than about tenants not paying their rent. a. Indicate the tax effects of the following alternatives: $1,000 damage deposit with no rent prepayment. $500 damage deposit and $500 rent for the final month of the lease. $1,000 rent for the final two months of the lease and no damage deposit. b. Which alternative do you recommend to maximize deferrals without affecting cash flows?
Problem 4-39 (LO. 2, 5) The Bluejay Apartments, a new development, is in the process of structuring its lease agreements. The company would like to set the damage deposits high enough that tenants will keep the apartments in good condition. The company is actually more concerned about damage than about tenants not paying their rent. a. Indicate the tax effects of the following alternatives: $1,000 damage deposit with no rent prepayment. $500 damage deposit and $500 rent for the final month of the lease. $1,000 rent for the final two months of the lease and no damage deposit. b. Which alternative do you recommend to maximize deferrals without affecting cash flows?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 4-39 (LO. 2, 5) The Bluejay Apartments, a new development, is in the process of
structuring its lease agreements. The company would like to set the damage deposits high
enough that tenants will keep the apartments in good condition. The company is actually
more concerned about damage than about tenants not paying their rent. a. Indicate the tax
effects of the following alternatives: $1,000 damage deposit with no rent prepayment. $500
damage deposit and $500 rent for the final month of the lease. $1,000 rent for the final two
months of the lease and no damage deposit. b. Which alternative do you recommend to
maximize deferrals without affecting cash flows?
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