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Unformatted text preview: for a three-year lease
commencing January 1, 1990 to cover rents for the years 1990, 1991, and 1992. In conformity with
GAAP, Ral did not include any part of this rental in its income statement for the year ended December 31,
What amount should Ral include in its 1989 taxable income for rent revenue?
Choice "d" is correct. Ral should include $27,000 in its 1989 taxable income for rent revenue.
Rule: Rental revenue received in advance is taxable in the year of receipt as opposed to over the term of
the lease as is required by GAAP.
Choices "a", "b", and "c" are incorrect, per the above rule. CPA-02215 Type1 M/C 107. CPA-02215 A-D May 90 II #32 Corr Ans: C PM#13 R 3-99 Page 18 John Budd is the sole stockholder of Ral Corp., an accrual basis taxpayer engaged in wholesaling
operations. Ral's retained earnings at January 1, 1989 amounted to $1,000,000. For the year ended
December 31, 1989, Ral's book income, before federal income tax, was $300,000. Included in the
computation of this $300,000 were the following:
Dividends received on 500 shares of stock of a taxable domestic corporation that had
1,000,000 shares of stock outstanding (Ral had no portfolio indebtedness)
Loss on sale of investment in stock of unaffiliated corporation (this stock
had been held for two years; Ral had no other capital gains or losses) (5,000) Keyman insurance premiums paid on Budd's life (R...
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