Journal entries for 5 years prepaid rent

[Unregistered]

The City Public Liability paid us $5M rent (lease) for the 5 years one year before the construction is completed. How can record this transactions?

The purpose of prepayment is to help us to complete the construction.

[ED SMITH]

Debit Prepaid rent $5m, credit cash $5M. Then each month, qtr or yr, whatever you choose, Debit Rent expense and credit Prepaid rent by the same prorated amount. Easy!

[Unregistered]

Are you also interested in the tax ramifications?

[Unregistered]

To Ed Smith

The journal entries for the company who received the $5M.

[jimmcg]

Journal Entries

For GAAP financial statement purposes Dr Cash $5M and Cr Unearned Rent $5M. As the rent is earned Dr Unearned Rent and Cr Rental Income. Want the tax ramificatons also?

[Unregistered]

Yes we do!

[jimmcg]

Advance Rent

Advance rent received is reported as taxable income in the year received regardless of the period covered or method of accounting used by the taxpayer. I don't know how this transaction was structured or documented but based on the facts given above it sounds like advance rent to me. Any other relevent facts we should be aware of?

[Scientist]

JIMMCG:

Excellent point. Is this non-GAAP measurement?

How about GAAP?

[veritas]

For some reason I think our guest is really asking for tax advice and not accounting advice. I agree the income should be reported in full in the year received based on the few facts given.

[Unregistered]

I am the one who starts the thread. I am confusing now.

I will be very much appreciated if someone can tell me GAAP journal entries and the impact to income tax.

[Bird Legs]

GAAP Journal entries - tax

GAAP Entries: When money received: Dr. Bank (cash) Cr. Prepaid Rent Income

Monthly entry will be: Dr. Prepaid Rent Income Cr. Rental Income
The amount will be 1/60 of the total.

Income Tax Purposes You will Dr. Cash in Bank and Cr. Rental Income.

[Unregistered]

I think GAAP allows $5M book it to the year they received the money, not 60 times.

Think about this:

If the prepaid rent is 30 years, then it will book 360 times.