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Wall Co. leased office premises to Fox, Inc., for a 5-year term beginning January 2, Year 4. Under the terms of the operating lease, rent for the first year is $8,000 and rent for years 2 through 5 is $12,500 per annum. However, as an inducement to enter the lease, Wall granted Fox the first 6 months of the lease rent-free. In its December 31, Year 4, income statement, what amount should Wall report as rental income?

Answer :

Answer:

$10,800

Explanation:

Given:

First year rent (Six month lease free rent) = $8,000 × 1 / 2 = $4,000

Year 2-5 rent = 4 year × $12,500 = $50,000

Computation of total 5 year rent:

Total rent = First year rent + Year 2-5 rent

Total rent = $4,000 + $50,000

Total rent = $54,000

Computation of per year rental income:

Per year rental income = Total rent for 5 years / 5

Per year rental income = $54,000 / 5

Per year rental income = $10,800

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