Office Palace,Inc.,leased an all-in-one printer to a new customer,Ashley,on December 27,2011.The printer was to rent for $600 per month for a period of 36 months beginning January 1,2012.Ashley was required to pay the first and last month's rent at the time the lease was signed.Ashley was also required to pay a $1,500 damage deposit.Office Palace must recognize as income for the lease:

Question

Quizplus · Accepted Answer

If Office Palace is an accrual basis taxpayer, for the year ended December 31, 2011, the company should recognize rental income for the time period from December 27, 2011, to December 31, 2011, which is $1,200 (($600 x 5 days)/ 31 days)). However, if Office Palace is a cash basis taxpayer, it should recognize no income in 2011 because no cash was received in 2011. Therefore, the best choice is D.