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Cash to Accrual for Rent Revenue MCQ

Marr Corp. reported rental revenue of $2,210,000 in its cash basis federal income tax return for the year ended November 30, Year 2. Additional information is as follows:

Rents receivable – November 30, Year 2        $ 1,060,000

Rents receivable – November 30, Year 1        800,000

Uncollectible rents written off during the fiscal year 30,000

Under the accrual basis, Marr should report rental revenue of:

A) $2,440,000

B) $1,980,000

C) $1,920,000

D) $2,500,000

$2,500,000 is correct. We can create a rent receivable rollforward to determine what rent revenue would be under the accrual basis.

Our starting point is the November 30, Year 1 balance of $800,000. Rent revenue is our PLUG. We would decrease rent receivable for the $2,210,000 of cash rent collected. Lastly, we would also decrease rent receivable for $30,000 of write-offs (rent receivable is credited in a write-off).

The ending rent receivable balance is $1,060,000. Based on the rollforward, rent revenue would be $2,500,000.

All of the other options are incorrect.


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