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PARTI (continued) 2) (19 points) Lerner, Inc. plans to open a retail store within the next year; it will rent space from Lowe Company. In an attempt to increase its cash flow, Lowe Company offers a discount to tenants who pay rent in advance. (For rent paid monthly, no discount is offered.) a) Warehouse Space: The annual rent is $108,000. (If rent is paid one year in advance, the total due at the beginning of the term of the lease would be $102,600; if rent is paid two years in advance, the total due at the beginning of the term of the lease would be $194,400.) b) Retail Space: The annual rent is $300,000. (If rent is paid one year in advance, the total due at the beginning of the term of the lease would be $285,000; if rent is paid two years in advance, the total due at the beginning of the term of the lease would be $540,000.) Lerner has decided to rent warehouse space to store merchandise before renting retail space. Space is rented from Lowe Company as follows: 1) November 1, 20x4: Warehouse space is rented. A two-year lease is signed Amount paid: $194,400 (Discount has been applied.) 2) April 1, 20x6: Retail space is rented. A one-year lease is signed. Amount paid: $285,000 (Discount has been applied.) NOTE: Accounting policies followed by each company For Lerner (the tenant): When rent is paid in advance, an asset account is debited. For Lowe (the property owner): When rent is received in advance, a revenue account is credited.] - REQUIRED (see the next page)

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