Nina leases a building to Downtown Computer Systems for $5,000 per month under a 5-year lease. The terms of the lease provide that any improvements to the building made by Downtown revert to Nina upon termination of the lease. Downtown remodels the building at a cost of $40,000. At the end of the lease, the fair market value of the remodeling improvements is $50,000. Nina sells the building one year later for $250,000.

a. List three points at which Nina might recognize income from the improvements made by Downtown Computer Systems.

b. According to the income concepts presented in the chapter, when should Nina recognize income from the lease? Explain.

c. Would your answer to part b be different if the lease provides that any improvements made by Downtown Computer Systems can be deducted from the rental payment made to Nina?