Question

A landlord collected $5000 cash from a tenant for December 2017's rent but the tenant's rent for December is $8000. Which of the following is TRUE with respect to the landlord's financial statements?
A. $8000 would appear on the income statement as rent revenue earned.
B. $8000 would be reported on the statement of cash flows
C. $8000 would appear on the balance sheet as rent receivable
D. $5000 would appear on the balance sheet as prepaid rent

Answer 1

Answer:

The answer is A. $ 8000 would appear on the income statement as rent revenue

Explanation:

We're dealing with financial statement, therefore we need to apply accounting principles. This income relates to the December month. The fact that only $ 5000 has been received does not reduce the income allocated to this month. This means that actual income in accounting terms is still $ 8000. The $ 5000 received will go to bank. This is not prepaid rent as the rent is due and not paid in advance. If it was paid in prior months for a later month it would be considered prepaid rent. Nor will $ 8000 appear on the statement of cashflows as only $ 5000 was received. The revenue is earned in this period, whether it is paid is not relevant to the revenue being recorded for this month.

Therefore the only logical answer is A. $8000 will appear on the income statement as rent revenue earned

Answer 2

Answer:

Answer is A. $8000 would appear on the income statement as rent revenue earned.

Refer below.

Explanation:

A landlord collected $5000 cash from a tenant for December 2017's rent but the tenant's rent for December is $8000. The following is TRUE with respect to the landlord's financial statements:

$8000 would appear on the income statement as rent revenue earned