4. Linkin Log opened a real estate leasing business on January 1, 2018 of the cu

Question

4. Linkin Log opened a real estate leasing business on January 1, 2018 of the current year. During the year, the following transactions occurred and were recorded in the company's books:

1. John Link, owner, invested $225,000 cash to start the business Linkin Log.
2. John Link bought a commercial building for $125,000 on March 1, 2018. The property was comprised of building of $100,000 and land of $25,000.  The building is depreciable over a 25 year life for GAAP and a 40 year life for tax.
3. The company paid $5,000 cash to rent office space for the 2018 year.
4. The company received $36,000 in rent which represented payment under the lease on the property. The payment was for the rental period from January 1 – December 31, 2018.
5. The company paid $1,200 for a maintenance contract under which services were rendered during the year.
6. The company received $3,000 of rent which represented payment under the lease on the property. The payment was for the rental period from January 1 – January 31, 2019.
7. The company paid cash of $1,500 for utilities for 2018 bills.
8. The company paid 2018 property taxes in the amount of $10,000 on July 1, 2018 and the company also paid for 2019 property taxes in the amount of $3,500 on December 15, 2018.

9. The company paid interest expense of $3,000 on its outstanding debt during 2018.  Accrued, unpaid interest through the end of the year, December 31, 2018, was an additional $300.
10. John Link withdrew $5,000 for his personal use from the company.

Based on the information above, GAAP net income as computed using the accrual method of accounting, should be:

_____________________

Based on the information above, taxable net income as computed using the accrual method of accounting, should be:

_____________________

Based on the information above, net operating income (NOI) for GAAP as computed under the accrual method of accounting should be:

_____________________

Based on the information above, net income as computed under the cash method of accounting (i.e. not under GAAP) should be:

_____________________

Explanation / Answer

Part 1

GAAP net income as computed using the accrual method of accounting

Part 2

Taxable net income as computed using the accrual method of accounting

Part 3

Net operating income (NOI) for GAAP as computed under the accrual method of accounting

Part 4

Net income as computed under the cash method of accounting

Particulars Amount Amount Revenue $    36,000.00 Less: Operation Expenses Maintenance $    1,200.00 Depreciation ($ 100,000 / 25) x (10/12) (mar to dec) $    3,333.00 Rent $    5,000.00 Utilities $    1,500.00 Property Tax $ 10,000.00 Total Operatinng Expenses $    21,033.00 Operating Profit $    14,967.00 Less: Non Operating Expenses Interest $      3,300.00 (3000 + 300) Net Income $    11,667.00

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