Lorene, Inc., owns an apartment complex. The terms of Lorene’s lease agreement require new tenants to pay the first and last month’s rent and a cleaning deposit at the inception of the lease. The cleaning deposit is returned when tenants move out and leave their apartment in good condition. If the apartment is not in good condition, Lorene hires a cleaning company and uses the tenant’s deposit to pay the cleaning bill, with any excess deposit returned.
During the current year, Lorene receives monthly rents totaling $28,000, last month’s rent deposits from new tenants of $8,000, and cleaning deposits of $7,000. Lorene keeps $5,000 in cleaning deposits to pay the cleaning company bill on apartments that are not left in good shape (the $5,000 is the actual cost that is paid in cash to the cleaning company) and returns $4,000 in deposits. Lorene’s expenses related to the rental property (other than the cleaning costs) are $14,000. What is Lorene, Inc.’s gross income from the rental property if Lorene is a cash basis taxpayer? an accrual basis taxpayer?
Trending nowThis is a popular solution!
Chapter 3 Solutions
CONCEPTS IN FED.TAX.,2020-W/ACCESS
- Hassad owns a rental house on Lake Tahoe. He uses a real estate firm to screen prospective renters, but he makes the final decision on all rentals. He also is responsible for setting the weekly rental price of the house. During the current year, the house rents for 1,500 per week. Hassad pays a commission of 150 and a cleaning fee of 75 for each week the property is rented. During the current year, he incurs the following additional expenses related to the property: a. What is the proper tax treatment if Hassad rents the house for only 1 week (7 days) and uses it 50 days for personal purposes? b. What is the proper tax treatment if Hassad rents the house for 8 weeks (56 days) and uses it 44 days for personal purposes? c. What is the proper tax treatment if Hassad rents the house for 25 weeks (175 days) and uses it 15 days for personal purposes?arrow_forwardA landlord needs to account for the tenant security deposit at the end of a tenancy. The landlord A) must provide a final written account to the tenant within 45 days of the termination of tenancy B) may provide an interim written account within 30 days of the termination of the tenancy if property damage estimates are still being obtained C) may withhold the entire tenant security deposits for up to 90 days after the termination of the tenancy while property damage estimates are being obtained D) must deduct the estimated cost of repair for damages and refund the balance of the tenant security deposit within 30 days of the termination of the tenancyarrow_forwardNancy Kapiolani lives in a duplex that she owns at 1218 Park Ave S., Tacoma, WA 98447. Nancy rents one-half of her duplex and lives in the other half. In 2023, her existing tenant’s lease expires and the tenant moves out. The tenant paid $2,500 in rent during 2023. Nancy had collected first and last months’ rent from the tenant in 2022. Due to the condition of the unit, Nancy keeps $200 of the security deposit to make repairs. Her new tenant moves in and pays $1,000 per month for a one-year lease starting July 1, 2023. The new tenant is also required to pay Nancy first and last months’ rent plus a $500 security deposit. The unit is rented for 365 days during 2023. Nancy’s basis for depreciation on the rental portion is $120,000, and she uses straight-line depreciation with a 27.5 year useful life. Repairs to the rental half of the unit are $400 (including the $200 from the security deposit). On the whole duplex, real estate taxes are $2,200, interest on the mortgage is $3,400,…arrow_forward
- C-Group owns residential apartments to generate rental income. Until 31 January 2020, one of the apartments was rented for $55,000 a month to a tenant. Since 1 February 2020 it has been occupied rent-free by Mr. Chan as non-monetary housing benefit from C-Group. Besides, C-Group has been leasing its head office from Mr. Lee’s father since operation and they considered the terms and conditions are at arm’s length. C-Group, which comprises a parent company (C-1 Company) and two subsidiaries (C- 2 Company and C-3 Company) as a group. Each subsidiary contributed to the group’s 20% of revenue and are audited by another reputable well-known audit firm, Lee & Lee Co. (“Lee & Lee”). Question: Describe five important matters that you should consider when you know the additional information (1) and state the relevant audit evidence that you expect to find in undertaking your review of the audit working papers and financial statements of C-Group in relation to those matters that you…arrow_forwardMs. Carla Babo, a self-employed individual, rents out a five-room apartment. One of the rooms is rented to Mr. Maco Knot on March 1 of the current year, with the following terms and conditions. How much is the gross income of Ms. Babo at the end of the year? Monthly rental Security deposit for 3 months to be returned at the end of the lease contract Share on the real estate tax assumed by the lessee 15,000 45,000 2,500 152,500 182,500 197,500 227,500 None of the abovearrow_forwardDr. Alice Foyle (lessee) has a non-cancelable, 20-year lease with Brownback Realty Inc. (lessor) for the use of a medical building. Taxes, insurance, and maintenance are paid by the lessee in addition to the fixed annual payments, of which the present value is equal to the fair value of the leased property. At the end of the lease period, title becomes the lessee's at a nominal price. Considering the terms of this lease, comment on the nature of the lease transaction and the accounting treatment that should be accorded it by the lessee.arrow_forward
- A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee. The tenant wanted to get out of its lease so it could move to a different building. The lessor had held the lease for three years before it was canceled. The lessor had a zero tax basis for the lease. The lessor has received: a.Ordinary income of $45,000. b.Long-term capital gain of $45,000. c.Short-term capital gain of $45,000. d.Neither gain nor loss.arrow_forwardGrant leased an apartment to Epstein for the term May 1, at $750 a month “payable in advance on the day of each and every month of said term.” At the time the lease was signed, Epstein told Grant that he received his salary on the tenth of the month and that he would be unable to pay the rent before that date each month. Grant replied that would be satisfactory. On June 2, due to Epstein’s not having paid the June rent, Grant sued Epstein for such rent. At the trial, Epstein offered to prove the oral agreement as to the date of payment each month. Is the oral evidence admissible? Why or why not?arrow_forwardPeter Andrus owned an apartment building that he had insured under a fire insurance policy sold by J.C. Durick Insurance (Durick). Two months prior to the expiration of the policy, Durick notified Andrus that the building should be insured for $48,000 (or 80 percent of the building’s value), as required by the insurance company. Andrus replied that (1) he wanted insurance to match the amount of the outstanding mortgage on the building (i.e., $24,000) and (2) if Durick could not sell this insurance, he would go elsewhere. Durick sent a new insurance policy in the face amount of $48,000 with the notation that the policy was automatically accepted unless Andrus notified him to the contrary. Andrus did not reply. However, he did not pay the premiums on the policy. Durick sued Andrus to recover these premiums. Who wins?arrow_forward
- Dominic owns a property in Sai Kung which was let under the following terms: I. Term: 1 January 2020 to 31 December 2020. II. Rental deposit: $16,000. III. Monthly rent: $8,000. IV. Rates: $1,000 per quarter payable by the tenant. V. Management fee: $800 per month payable by the tenant. The tenant paid rent on schedule only up to June 2020, but he continued to live in the property until December 2020. Dominic repossessed the property and applied the rental deposit against the outstanding rent. The property was let again in February 2021 at a monthly rent of $3,000. What is the net assessable value of the property for the year of assessment 2020/21?arrow_forwardThe 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. Question Content Area b. Which alternative do you recommend to maximize deferrals without affecting cash flows?arrow_forwardRavis Rent-A-Car Company leases a car to Ira Reem, an employee, on January 1, 2019. The term of the noncancelable lease is 4 years. The following information about the lease is provided: 1. Title to the car passes to Ira on the termination of the lease with no additional payment required by the lessee. 2. The cost and fair value of the car is $8,400. The car has an economic life of 5 years. 3. The interest rate implicit in the lease is 10%. 4. It is probable that Ravis will collect the lease payments. 5. Equal annual lease payments are due at the end of each year. 3a. Prepare the journal entries for 2019. PAGE 2019 GENERAL JOURNAL DATE ACCOUNT TITLE DEBIT CREDIT 1 2 3 4 5 6 7 3b. Prepare the journal entries for 2020. PAGE 2020 GENERAL JOURNAL DATE ACCOUNT TITLE DEBIT…arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT